Heterogeneous switching costs |
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| Affiliation: | 1. University of North Carolina, Department of Economics, Chapel Hill, NC 27599-3305, United States;2. Toulouse School of Economics, 21 allée de Brienne, 31015 Toulouse, Cedex 6, France;3. European Commission, DG Competition, Place Madou 1, 1210 Saint-Josse-ten-Noode, Belgium;1. Norwegian School of Economics, Bergen, Norway;2. University of Oslo, Norway;1. Department of Economics, University of Bristol, 8 Woodland Road, Bristol BS8 1TN, UK;2. Toulouse School of Economics, Manufacture des Tabacs, 21 allée de Brienne, 31015 Toulouse Cedex 6, France;3. Department of Economics, University College London, Drayton House, 30 Gordon Street, London WC1H 0AX, UK;4. Institute for Fiscal Studies, London, UK;5. Sciences Po, Paris, France;1. Shanghai University of Finance and Economics, School of Economics, Guoding Road 777, Shanghai 200433, China;2. Korea University, Department of Economics, Sungbuk-gu Anam-ro 145, Seoul 136-701, Republic of Korea;3. Institute of Economic Theory I, Humboldt University at Berlin, Spandauer Str. 1, 10178 Berlin, Germany;1. CREST (LMI), 15 Boulevard Gabriel Péri, 92245 Malakoff, France;2. University of Mannheim, L7, 3-5 68131 Mannheim, Germany;3. CREST (LEI), 15 Boulevard Gabriel Péri, 92245 Malakoff, France |
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| Abstract: | We consider a two period model where consumers have different switching costs. Before the market opens an Incumbent sells to all consumers; after the market opens competitors appear. 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. Furthermore, we identify a free rider effect among consumers. |
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