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Mixed Pricing In Oligopoly With Consumer Switching Costs

Author

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  • A. Jorge Padilla

    (Nuffield College)

Abstract

In this paper we develop a two-period model of duopolistic competition with consumer switching costs. Our model extends previous results in these kind of models in a more natural framework where products are undifferentiated except by switching costs. We also allow for differently informed consumers and a dynamic consumer tumover. In this model the competitiveness of markets with consumer switching costs is determined by the proportion of price sensitive consumers, that is fully informed uncommitted consumers, in the market. In contrast with previous studies, firms have different (asymmetric) market shares in equilibrium. Our model supports the presence of action-reaction in the evolution of markets with consumer switching costs, the possibility of (accidental) price wars, price promotions, and the possible optimality of strategic commitment to a low market share as a way to deter entry in this type of market. JEL nos. 022. 611 Keywords: Market share, mixed strategies, switching costs.

Suggested Citation

  • A. Jorge Padilla, 1991. "Mixed Pricing In Oligopoly With Consumer Switching Costs," Working Papers. Serie AD 1991-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:1991-06
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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1991-06.pdf
    File Function: Fisrt version / Primera version, 1991
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    Cited by:

    1. Ruqu Wang & Quan Wen, 1998. "Strategic Invasion in Markets with Switching Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 521-549, December.

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