UZH-Logo

Maintenance Infos

Switching Costs, Firm Size, and Market Structure


Loertscher, Simon; Schneider, Yves (2005). Switching Costs, Firm Size, and Market Structure. Working paper series / Socioeconomic Institute No. 508, University of Zurich.

Abstract

In many markets, homogenous goods and services are sold both by large global frms and small local frms. Surprisingly, the large frms charge, often substantially, higher prices. Examples include hotels, airlines, and coffee shops. This paper provides a parsimonious model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and consumers change locations with a given positive probability. Consequently, large frms or "chain stores" insure consumers against this switching cost. The model predicts that chain stores and local stores coexist in equilibrium and that chain stores charge higher prices and yet attract more consumers than local stores. As consumer mobility increases, the profits of both local stores and chain stores increase, but the chain stores' profts increase at a faster rate.

In many markets, homogenous goods and services are sold both by large global frms and small local frms. Surprisingly, the large frms charge, often substantially, higher prices. Examples include hotels, airlines, and coffee shops. This paper provides a parsimonious model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and consumers change locations with a given positive probability. Consequently, large frms or "chain stores" insure consumers against this switching cost. The model predicts that chain stores and local stores coexist in equilibrium and that chain stores charge higher prices and yet attract more consumers than local stores. As consumer mobility increases, the profits of both local stores and chain stores increase, but the chain stores' profts increase at a faster rate.

Downloads

734 downloads since deposited on 29 Nov 2011
184 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
Dewey Decimal Classification:330 Economics
JEL Classification:D43, L15
Language:English
Date:August 2005
Deposited On:29 Nov 2011 22:32
Last Modified:05 Apr 2016 15:11
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: https://doi.org/10.5167/uzh-52205

Download

[img]
Preview
Filetype: PDF
Size: 334kB

TrendTerms

TrendTerms displays relevant terms of the abstract of this publication and related documents on a map. The terms and their relations were extracted from ZORA using word statistics. Their timelines are taken from ZORA as well. The bubble size of a term is proportional to the number of documents where the term occurs. Red, orange, yellow and green colors are used for terms that occur in the current document; red indicates high interlinkedness of a term with other terms, orange, yellow and green decreasing interlinkedness. Blue is used for terms that have a relation with the terms in this document, but occur in other documents.
You can navigate and zoom the map. Mouse-hovering a term displays its timeline, clicking it yields the associated documents.

Author Collaborations