Estimating Consumer Lock-In Effects from Firm-Level Data
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This paper proposes a practical method for estimating consumer lock-in effects from firm-level data. The method compares the behavior of already contracted consumers to the behavior of new consumers, the latter serving as a counterfactual to the former. In panel regressions on firms’ incoming and quitting consumers, we look at the differential response to price changes and identify the lock-in effect from the difference between the two. We discuss the potential econometric issues and measurement problems and offer solutions to them. We illustrate our method by analyzing the market for personal loans in Hungary and find strong lock-in effects.
Keywordslock-in switching costs demand analysis difference-in-differences personal loans
JEL ClassificationC33 D12 L13
The empirical methodology presented in this paper was developed as part of the 2007–2009 retail banking sector inquiry of the Hungarian Competition Authority (GVH), in which the first author worked as an expert and the second author worked as Chief Economist. The views expressed in this paper are not purported to represent those of the GVH.
We thank Dávid Farkas for excellent research assistance, and Jacques Cr émer, Timothy Hannan, Gábor Koltay, Surd Kováts, Aliz McLean, Balázs Muraközy, Konrad Stahl, Ádám Szentpéteri, Chris Wilson and seminar participants at CEU, GVH, IE-HAS Budapest, Mannheim and Toulouse for their valuable comments on previous versions of the paper circulated under the title “Estimating the Lock-in Effects of Switching Costs from Firm-Level Data”. We are very grateful for two anonymous referees and the editor for their thoughtful suggestions that helped us to considerably improve the message of the paper. All remaining error are ours.
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