DP9809 Heterogenous switching costs

Author(s): Gary Biglaiser, Jacques Crémer, Gergely Dobos
Publication Date: February 2014
Keyword(s): switching cost
JEL(s): D43, L13
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9809

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.