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Markets with Consumer Switching Costs
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Markets with Consumer Switching Costs

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  • Paul Klemperer

Abstract

Ex ante homogeneous products may, after the purchase of one of them, be ex post differentiated by switching costs including learning costs, transaction costs, or "artificial" costs imposed by firms, such as repeat-purchase discounts. The nonco-operative equilibrium in an oligopoly with switching costs may be the same as the collusive outcome in an otherwise identical market without switching costs. However, the prospect of future collusive profits leads to vigorous competition for market share in the early stages of a market's development. The model thus explains the emphasis placed on market share as a goal of corporate strategy.

Suggested Citation

  • Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 375-394.
    • Handle: RePEc:oup:qjecon:v:102:y:1987:i:2:p:375-394.
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