Switching Costs, Firm Size, and Market Structure

Loertscher, Simon; Schneider, Yves (November 2005). Switching Costs, Firm Size, and Market Structure (Discussion Papers 05-15). Bern: Department of Economics

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In many markets homogenous goods are sold both by large global firms (”chain stores”) and small local firms. Surprisingly, chain stores often charge higher prices. Examples include hotels, airlines, and coffee shops. We provide a simple model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and change locations with a given probability. Consequently, chain stores insure consumers against switching costs. In equilibrium, chain stores charge higher prices, yet attract more consumers. Profits of local stores and chain stores increase with consumer
mobility, but the latter do so faster.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Lörtscher, Simon and Schneider, Yves

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

02 Oct 2020 08:04

Last Modified:

02 Oct 2020 08:04

JEL Classification:

D43, L15

BORIS DOI:

10.7892/boris.145679

URI:

https://boris.unibe.ch/id/eprint/145679

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