Switching costs, firm size, and market structure

Arbeitspapier

In many markets, homogenous goods and services are sold both by large global frms and small local frms. Surprisingly, the large frms charge, often substantially, higher prices. Examples include hotels, airlines, and coffee shops. This paper provides a parsimonious model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and consumers change locations with a given positive probability. Consequently, large frms or chain stores insure consumers against this switching cost. The model predicts that chain stores and local stores coexist in equilibrium and that chain stores charge higher prices and yet attract more consumers than local stores. As consumer mobility increases, the profits of both local stores and chain stores increase, but the chain stores' profts increase at a faster rate.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 0508

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Information and Product Quality; Standardization and Compatibility
• Subject: firm size ; switching costs ; consumer mobility ; market structure ; Betriebsgröße ; Marktstruktur ; Konsumentenverhalten ; SB-Lebensmittelgeschäft ; Theorie ; Wechselverhalten ; Nachbarschaftsladen

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Loertscher, Simon ; Schneider, Yves
• Event: Veröffentlichung
• (who): University of Zurich, Socioeconomic Institute
• (where): Zurich
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/76157
• Last update: 10.03.2025, 11:44 AM CET