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Switching Costs in the Wholesale Distribution of Cigarettes

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  • Kenneth G. Elzinga
  • David E. Mills

Abstract

Recent theories of price wars triggered by entry assign a critical role to switching costs in explaining price and output changes. Earlier, Elzinga and Mills (1998) showed that actual switching patterns following an episode of new entry in an industry are driven by the fact that buyers have different switching costs. The current paper draws on transaction‐specific price and shipments data surrounding the 1984‐1985 price war in generic cigarettes to explore the size and determinants of switching costs among wholesale cigarette distributors. Results show that switching costs vary across firms and are nontrivial in magnitude. Several implications of the findings are discussed.

Suggested Citation

  • Kenneth G. Elzinga & David E. Mills, 1998. "Switching Costs in the Wholesale Distribution of Cigarettes," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 282-293, October.
    • Handle: RePEc:wly:soecon:v:65:y:1998:i:2:p:282-293
    DOI: 10.1002/j.2325-8012.1998.tb00150.x
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    References listed on IDEAS

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    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
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    Cited by:

    1. 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.

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