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Some implications of search and switching costs for the price dynamics of electronic markets

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  • Pedro Pereira

Abstract

This article develops a model, based on switching costs and technological uncertainty, which explains some aspects of the price dynamics of e-commerce. Switching costs and intertemporal cost correlation lock-in consumers. Firms initially charge low prices to build a customer base. If firms fail to reduce costs, and reservation prices are low, firms exit the industry. Over time, prices increase if no exit occurs, and decrease if exit occurs. Prices may also decrease over time, if the proportion of low search cost consumers increases.

Suggested Citation

  • Pedro Pereira, 2004. "Some implications of search and switching costs for the price dynamics of electronic markets," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 11(3), pages 303-327.
    • Handle: RePEc:taf:ijecbs:v:11:y:2004:i:3:p:303-327
    DOI: 10.1080/1357151042000286429
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    More about this item

    Keywords

    E-Commerce; Search; Switching Costs; Learning; Industry Evolution; JEL Classification: D43; D83; L11; L13; L81; O31; O33;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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