IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v58y2010i3p627-641.html
   My bibliography  Save this article

On The Value Of A Large Customer Base In Markets With Switching Costs

Author

Listed:
  • Robert C. Schmidt

Abstract

It is usually acknowledged that firms benefit from a large customer base in markets with switching costs. However, Klemperer [1995] argues that this may not be true if an increase in the size of a firm's customer base induces fierce price competition, making the firm worse off. This paper shows that such an outcome can be obtained under standard assumptions, such as homogeneous goods and uniformly distributed switching costs. In the model, firms have very limited incentives to fight for market shares, and the notion that switching costs make markets less competitive is stronger than previously shown.

Suggested Citation

  • Robert C. Schmidt, 2010. "On The Value Of A Large Customer Base In Markets With Switching Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 627-641, September.
    • Handle: RePEc:bla:jindec:v:58:y:2010:i:3:p:627-641
    DOI: 10.1111/j.1467-6451.2010.00427.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-6451.2010.00427.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-6451.2010.00427.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 375-394.
    2. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    3. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert Schmidt, 2013. "Price competition and innovation in markets with brand loyalty," Journal of Economics, Springer, vol. 109(2), pages 147-173, June.
    2. Drouard, Joeffrey, 2022. "Content-distribution strategies in markets with locked-in customers," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    3. J.-P. Niinimäki, 2023. "Experience Goods, Umbrella Branding, and Reputation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(1), pages 33-44, February.
    4. Rizkiah, Siti K. & Disli, Mustafa & Salim, Kinan & Razak, Lutfi A., 2021. "Switching costs and bank competition: Evidence from dual banking economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Langus, Gregor & Lipatov, Vilen, 2008. "On Quantity Competition With Switching Costs," MPRA Paper 15457, University Library of Munich, Germany.
    2. E. Avenel, 2008. "Strategic Vertical Integration Without Foreclosure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 247-262, June.
    3. Christiaan Behrens & Nathalie McCaughey, 2015. "Loyalty Programs and Consumer Behaviour: The Impact of FFPs on Consumer Surplus," Tinbergen Institute Discussion Papers 15-048/VIII, Tinbergen Institute.
    4. Mark J. Tremblay, 2019. "Platform Competition and Endogenous Switching Costs," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 537-559, December.
    5. Federico Rossi & Pradeep K. Chintagunta, 2023. "Consumer Loyalty Programs and Retail Prices: Evidence from Gasoline Markets," Marketing Science, INFORMS, vol. 42(4), pages 794-818, July.
    6. Mitja Kovač & Ann-Sophie Vandenberghe, 2015. "Regulation of Automatic Renewal Clauses: A Behavioural Law and Economics Approach," Journal of Consumer Policy, Springer, vol. 38(3), pages 287-313, September.
    7. Koray Cosguner & Tat Y. Chan & P. B. (Seethu) Seetharaman, 2018. "Dynamic Pricing in a Distribution Channel in the Presence of Switching Costs," Management Science, INFORMS, vol. 64(3), pages 1212-1229, March.
    8. Javier D. Donna, 2021. "Measuring long‐run gasoline price elasticities in urban travel demand," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 945-994, December.
    9. Wing Man Wynne Lam, 2017. "Switching Costs in Two-Sided Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 65(1), pages 136-182, March.
    10. Donna, Javier D., 2018. "Measuring Long-Run Price Elasticities in Urban Travel Demand," MPRA Paper 90059, University Library of Munich, Germany.
    11. Javier D. Donna & Pedro Pereira, 2024. "Structural Presumptions for Non-horizontal Mergers in the 2023 Merger Guidelines: A Primer and a Path Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(1), pages 303-345, August.
    12. Rizkiah, Siti K. & Disli, Mustafa & Salim, Kinan & Razak, Lutfi A., 2021. "Switching costs and bank competition: Evidence from dual banking economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    13. Ciotti, Fabrizio & Hornuf, Lars & Stenzhorn, Eliza, 2021. "Lock-In Effects in Online Labor Markets," LIDAM Discussion Papers CORE 2021014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Miettinen, Topi & Stenbacka, Rune, 2015. "Personalized pricing versus history-based pricing: implications for privacy policy," Information Economics and Policy, Elsevier, vol. 33(C), pages 56-68.
    15. Wu, Lingli & Deng, Shiming & Jiang, Xuan, 2018. "Sampling and pricing strategy under competition," Omega, Elsevier, vol. 80(C), pages 192-208.
    16. Florez-Acosta, Jorge, 2021. "Do preferences for private labels respond to supermarket loyalty programs?," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 183-208.
    17. Toru Kikuchi, 2009. "Switching Costs And The Foreign Firm'S Entry," Manchester School, University of Manchester, vol. 77(3), pages 366-372, June.
    18. Kummitha, Rama Krishna Reddy, 2018. "Entrepreneurial urbanism and technological panacea: Why Smart City planning needs to go beyond corporate visioning?," Technological Forecasting and Social Change, Elsevier, vol. 137(C), pages 330-339.
    19. Szech, Nora & Weinschenk, Philipp, 2013. "Rebates in a Bertrand game," Journal of Mathematical Economics, Elsevier, vol. 49(2), pages 124-133.
    20. Jiawei Chen-super-†, 2016. "How Do Switching Costs Affect Market Concentration and Prices in Network Industries?," Journal of Industrial Economics, Wiley Blackwell, vol. 64(2), pages 226-254, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:58:y:2010:i:3:p:627-641. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.