Market structure and the competitive effects of switching costs

Fabra, Natalia; García, Alfredo

doi:10.1016/j.econlet.2014.12.008

Cited by 12 publications

(6 citation statements)

References 20 publications

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“…This feature distinguishes our analysis from Fabra and Garcia (2015) who also develop a continuous time uniform pricing model. But in their model, consumers "refresh" their preferences at each instant in time, and they do not incorporate full consumer rational expectations in the sense that consumers anticipate future prices based on current market shares.…”

Section: Dynamic Profit Maximization and The Equilibrium Conceptmentioning

confidence: 94%

“…A Markov pricing policy is a mapping from the locked-in market share σ L i to a vector of prices p i (σ L i ) = (p N i (σ L i ), p L i (σ L i )). As explained in Fabra and Garcia (2015), who also applied the same equilibrium concept in a continuous time context, a pair of Markov price strategies p *…”

Section: Dynamic Profit Maximization and The Equilibrium Conceptmentioning

confidence: 97%

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History-based versus uniform pricing in growing and declining markets

Shy

Stenbacka

Zhang

2016

International Journal of Industrial Organization

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Section: Dynamic Profit Maximization and The Equilibrium Conceptmentioning

confidence: 94%

Section: Dynamic Profit Maximization and The Equilibrium Conceptmentioning

confidence: 97%

History-based versus uniform pricing in growing and declining markets

Shy

Stenbacka

Zhang

2016

International Journal of Industrial Organization

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“…19 Recent theoretical literature includes discussion of the possibility that lower switching costs may increase competitive pressure (Arie and Grieco, 2014;Cabral, 2016;Dubé et al, 2009;Fabra and García, 2015;Rhodes, 2014). A detailed discussion of previous literature and an analysis of when switching costs make markets more or less competitive can be found in Ruiz-Aliseda (2016).…”

Section: Stylized Choice Modelmentioning

confidence: 99%

Switching Costs, Brand Premia and Behavioral Pricing in the Pharmaceutical Market

Janssen

2020

SSRN Journal

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This article examines the market power of branded prescription drugs faced with generic competition. Using prescription-level and matched socioeconomic panel data of the entire Swedish population between 2010 and 2016, I provide evidence for the key role of switching costs. A discontinuity surrounding patent expirations establishes that the effect is causal. Further, by comparing patients with and without medical education, I show that those without medical education experience higher brand premia. A unique feature of the Swedish market allows me to rule out patients' inattention due to information costs as a source of market power. Therefore, switching costs and perceived quality differences are the key determinants of market power. I then estimate a dynamic oligopoly model with forward-looking firms which is used in counterfactual studies of the effect of switching costs and perceived quality differences on prices. First, an increase in the length of procurement mimics a reduction of switching costs and increases prices. While the effect of switching costs on prices in theory is ambiguous, moderate switching costs and sufficient competition for new patients increase competitive pressure. Second, if everyone acts as a medical expert and experiences fewer brand premia, prices decrease.

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“…Recently, some research develops the relationship between switching costs and firms' behavior (Fabra & Garc ıa, 2015). Switching costs have many effects on firms' strategies and there exists a large literature in this field.…”

Section: Switching Costsmentioning

confidence: 99%