QME

, Volume 8, Issue 2, pp 167–205

Switching costs, experience goods and dynamic price competition

Article

DOI: 10.1007/s11129-010-9083-y

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 competitionExperience goodsMarkov-perfect equilibriumSwitching costs

JEL Classification

C73D21D43L13L14L15

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Department of Business and EconomicsUniversity of Southern DenmarkOdenseDenmark
  2. 2.Faculty of Arts and SciencesSabanci UniversityIstanbulTurkey