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Dynamic Pricing in Customer Markets with Switching Costs

Author

Listed:
  • Luis Cabral

    (New York University)

Abstract

In a dynamic competitive environment, switching costs have two effects. First, they increase the market power of a seller with locked-in customers. Second, they increase competition for new customers. I provide conditions under which switching costs decrease or increase equilibrium prices. Taken together, the results suggest that, if markets are very competitive to begin with, then switching costs make them even more competitive; whereas if markets are not very competitive to begin with, then switching costs make them even less competitive. In the above statements, by "competitive" I mean a market that is close to a symmetric duopoly or one where sales take place with high frequency. (Copyright: Elsevier)

Suggested Citation

  • Luis Cabral, 2016. "Dynamic Pricing in Customer Markets with Switching Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 43-62, April.
    • Handle: RePEc:red:issued:13-75
    DOI: 10.1016/j.red.2015.09.002
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Switching costs; Dynamic pricing; Customer markets;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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