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Markets with Search and Switching Costs

Author

Listed:
  • Chris Wilson

    (Department of Economics, University of Oxford)

Abstract

By incorporating the additional existence of switching costs into an oligopoly model of search by Stahl (1989), this paper dispels the misleading idea that search costs can simply be treated as a form of switching cost. Due to the assumption that search costs, unlike switching costs, are incurred unconditionally on the decision to switch suppliers it is shown that the anticompetitive effects of search costs are consistently largers than those from an equivalent level of switching costs. The finding suggests that obfuscation practices that aim to deter consumers from searching, such as competing on deliberately complex tariffs, may be particularly powerful relative to practices that increase the costs of substitution between firms, such as loyalty programs and termination fees.

Suggested Citation

  • Chris Wilson, 2006. "Markets with Search and Switching Costs," Working Papers 06-10, Centre for Competition Policy, University of East Anglia.
    • Handle: RePEc:ccp:wpaper:wp06-10
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP06-10.pdf
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    More about this item

    Keywords

    Search costs; switching costs; obfuscation;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • 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

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