DP9809 | Heterogenous switching costs

Publication Date

02/02/2014

JEL Code(s)

Keyword(s)

Programme Area(s)

Abstract

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.