Switching costs, experience goods and dynamic price competition
First Online: 06 February 2010 Received: 08 March 2009 Accepted: 21 January 2010 DOI:
Cite this article as: Doganoglu, T. Quant Mark Econ (2010) 8: 167. doi:10.1007/s11129-010-9083-y Abstract
I analyze a dynamic duopoly with an infinite horizon where consumers are uncertain about their potential satisfaction from the products and face switching costs. I derive sufficient conditions for the existence of a Markov Perfect Equilibrium(MPE) where switching takes place each period. I show that when switching costs are sufficiently low, the prices in the steady state are lower than what they would have been when they are absent. This result is in contrast to those found in the literature. In the presence of low switching costs competition can be fiercer.
Keywords Dynamic price competition Experience goods Markov-perfect equilibrium Switching costs References
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