Working Paper: CEPR ID: DP9809
Authors: Gary Biglaiser; Jacques Crmer; Gergely Dobos
Abstract: We consider a simple two period model where consumers have different switching costs. Before the market opens, there was an incumbent who sold to all consumers. We identify the equilibrium both with Stackelberg and Bertrand competition and show how the presence of low switching cost consumers benefits the incumbent, despite the fact that it never sells to any of them.
Keywords: switching cost
JEL Codes: D43; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| switching costs (D23) | firm pricing strategies (L11) |
| low switching cost consumers (D16) | lower prices for incumbent firm (L11) |
| high switching cost consumers (D16) | higher prices for incumbent firm (D43) |
| low switching cost consumers (D16) | higher equilibrium profits for incumbent (D43) |
| number of low switching cost consumers (D16) | incumbent's profit (D33) |