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Switching costs, experience goods and dynamic price competition

Doğanoğlu, Uğur Toker (2010) Switching costs, experience goods and dynamic price competition. Quantitative Marketing and Economics, 8 (2). pp. 167-205. ISSN 1570-7156 (Print) 1573-711X (Online)

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Official URL: http://dx.doi.org/10.1007/s11129-010-9083-y

Abstract

I analyze a dynamic duopoly with an infinite horizon where consumers are uncertain about their potential satisfaction from the products and face switching costs. I derive sufficient conditions for the existence of a Markov Perfect Equilibrium(MPE) where switching takes place each period. I show that when switching costs are sufficiently low, the prices in the steady state are lower than what they would have been when they are absent. This result is in contrast to those found in the literature. In the presence of low switching costs competition can be fiercer.

Item Type:Article
Uncontrolled Keywords:Dynamic price competition; Experience goods; Markov-perfect equilibrium; Switching costs
Subjects:UNSPECIFIED
ID Code:13906
Deposited By:Uğur Toker Doğanoğlu
Deposited On:16 Apr 2010 10:28
Last Modified:25 May 2011 14:18

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