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Dynamic Competition with Switching Costs

Author

Listed:
  • Farrell, Joseph
  • Shapiro, Carl
Abstract
We analyze an overlapping-generations model of duopolistic competition in the presence of consumer switching costs. Competition for established buyers is continually intermingled with competition for new, uncommitted buyers. In equilibrium the firm with attached customers typically specializes in serving them and concedes new buyers to its rival. This pattern of repeated entry persists even when there are economies of scale or network externalities. Switching costs thus can cause inefficiency in a surprising way: far from forming an entry barrier, they encourage entry to serve new customers, even when such entry is inefficient.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Farrell, Joseph & Shapiro, Carl, 1988. "Dynamic Competition with Switching Costs," Department of Economics, Working Paper Series qt1h02g9q4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt1h02g9q4
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