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Welfare Effects of Entry into Markets with Switching Costs.

Abstract:
In many markets, consumers have costs of switching between products that are functionally identical. This note shows that entry of efficient low-cost competitors into these markets may be socially detrimental. In a linear model, entry reduces social welfare (as conventionally defined) in more than half of the relevant parameter space. In a more general model, there is always a range of values of switching costs for which entry reduces welfare, even if the entrant's production costs are lower than the incumbent's.

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Authors


Paul D Klemperer More by this author
Journal:
Journal of Industrial Economics
Volume:
37
Publication date:
1988
URN:
uuid:8afaf96d-4e5a-4d0b-b34c-0ec8fb24ece5
Local pid:
oai:economics.ouls.ox.ac.uk:10998
Language:
English

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