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Author: V. Brian Viard
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Do switching costs reduce or intensify price competition in markets where firms charge the same price to old and new consumers? The answer is theoretically ambiguous because a firm prefers to charge a higher price to previous purchasers who are "locked-in" and a lower price to unattached consumers who offer higher future profitability. 800-number portability provides empirical evidence to determine whether switching costs reduce or intensify price competition under a single price regime. Before portability, a customer had to change toll-free numbers in order to change service providers. In May 1993, 800-numbers became portable, under a regulatory regime that precluded price discrimination between old and new consumers. I test how AT&T and MCI adjusted their toll-free services prices in response to portability. I find that the firms reduced prices with portability, implying that the elimination of switching costs due to portability made the market more competitive. Thus, despite rapid growth in toll-free services, the firms' incentives to charge a higher price to "locked-in" consumers exceeded their incentive to capture new consumers. Prices on larger contracts dropped more post-portability than those on smaller contracts, consistent with greater "lock-in" for larger users. I also find evidence that price changes after portability's announcement but before implementation are consistent with rational expectations assumptions of theoretical switching costs models.
Author: V. Brian Viard
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Do switching costs reduce or intensify price competition in markets where firms charge the same price to old and new consumers? The answer is theoretically ambiguous because a firm prefers to charge a higher price to previous purchasers who are "locked-in" and a lower price to unattached consumers who offer higher future profitability. 800-number portability provides empirical evidence to determine whether switching costs reduce or intensify price competition under a single price regime. Before portability, a customer had to change toll-free numbers in order to change service providers. In May 1993, 800-numbers became portable, under a regulatory regime that precluded price discrimination between old and new consumers. I test how AT&T and MCI adjusted their toll-free services prices in response to portability. I find that the firms reduced prices with portability, implying that the elimination of switching costs due to portability made the market more competitive. Thus, despite rapid growth in toll-free services, the firms' incentives to charge a higher price to "locked-in" consumers exceeded their incentive to capture new consumers. Prices on larger contracts dropped more post-portability than those on smaller contracts, consistent with greater "lock-in" for larger users. I also find evidence that price changes after portability's announcement but before implementation are consistent with rational expectations assumptions of theoretical switching costs models.
Author: Jean-Pierre Dubé
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The conventional wisdom in economic theory holds that switching costs make markets less competitive. This paper challenges this claim. We find that steady-state equilibrium prices may fall as switching costs are introduced into a simple model of dynamic price competition that allows for differentiated products and imperfect lock-in. To assess whether this finding is of empirical relevance, we consider a more general model with heterogeneous consumers. We calibrate this model with data from a frequently purchased packaged goods market where consumers exhibit inertia in their brand choices, a behavior consistent with switching costs. We estimate the level of switching costs from the brand choice behavior in this data. At switching costs of the order of magnitude found in our data, prices are lower than without switching costs.
Author: Jason Pearcy
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
In markets where consumers have switching costs and firms cannot price discriminate, firms have two conflicting strategies. A firm can either offer a low price to attract new consumers and build future market share or a firm can offer a high price to exploit the partial lock-in of their existing consumers. This paper develops a theory of competition when overlapping generations of consumers have switching costs and firms produce differentiated products. Competition takes place over an infinite horizon with any number of firms. This paper shows that the relationship between the level of switching costs, firms' discount rate, and the number of firms determines whether firms offer low or high prices. Similar to previous duopoly studies, switching costs are likely to facilitate lower (higher) equilibrium prices when switching costs are small (large) or when a firm's discount rate is large (small). Unlike previous studies this paper demonstrates that the number of firms also determines whether switching costs are pro- or anti-competitive, and with a sufficiently large (small) number of firms switching costs are pro- (anti-) competitive.
Author: Luís M. B. Cabral
Publisher:
ISBN:
Category :
Languages : en
Pages : 27
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Author: Irina Suleymanova
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Peter E. Rossi
Publisher: John Wiley & Sons
ISBN: 0470863684
Category : Mathematics
Languages : en
Pages : 368
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Book Description
The past decade has seen a dramatic increase in the use of Bayesian methods in marketing due, in part, to computational and modelling breakthroughs, making its implementation ideal for many marketing problems. Bayesian analyses can now be conducted over a wide range of marketing problems, from new product introduction to pricing, and with a wide variety of different data sources. Bayesian Statistics and Marketing describes the basic advantages of the Bayesian approach, detailing the nature of the computational revolution. Examples contained include household and consumer panel data on product purchases and survey data, demand models based on micro-economic theory and random effect models used to pool data among respondents. The book also discusses the theory and practical use of MCMC methods. Written by the leading experts in the field, this unique book: Presents a unified treatment of Bayesian methods in marketing, with common notation and algorithms for estimating the models. Provides a self-contained introduction to Bayesian methods. Includes case studies drawn from the authors’ recent research to illustrate how Bayesian methods can be extended to apply to many important marketing problems. Is accompanied by an R package, bayesm, which implements all of the models and methods in the book and includes many datasets. In addition the book’s website hosts datasets and R code for the case studies. Bayesian Statistics and Marketing provides a platform for researchers in marketing to analyse their data with state-of-the-art methods and develop new models of consumer behaviour. It provides a unified reference for cutting-edge marketing researchers, as well as an invaluable guide to this growing area for both graduate students and professors, alike.
Author: Paul Klemperer
Publisher:
ISBN:
Category :
Languages : en
Pages : 13
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Author: Robert Schmidt
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
It is usually acknowledged that firms benefit from a large customer base in markets with switching costs. However, Klemperer [1995] argues that this may not be true if an increase in the size of a firm's customer base induces fierce price competition, making the firm worse off. This paper shows that such an outcome can be obtained under standard assumptions, such as homogeneous goods and uniformly distributed switching costs. In the model, firms have very limited incentives to fight for market shares, and the notion that switching costs make markets less competitive is stronger than previously shown.
Author: Alan W. Beggs
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 52
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Book Description
Author: Oz Shy
Publisher: Cambridge University Press
ISBN: 1139432273
Category : Business & Economics
Languages : en
Pages : 264
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Book Description
This book introduces upper-level undergraduates, graduate students, and researchers to the latest developments in network economics, one of the fastest-growing fields in all industrial organization. Network industries include the Internet, e-mail, telephony, computer hardware and software, music and video players, and service operations in the banking, legal, and airlines industries among many others. The work offers an overview of the subject matter as well as investigations about specific industries. It conveys the essential features of how strategic interactions between firms are affected by network activity, as well as covering social interaction and its influence on consumers' choices of products and services. Virtually no calculus is used in the text, and each chapter ends with a series of exercises and selected references. The text may be used for both one- and two-semester courses.
