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Paying Customers to Switch
Abstract
This paper studies the business practice of offering discounts to new customers in markets with switching costs. In a two‐period homogeneous‐good duopoly model, it is shown that the equilibrium amount of discounts increases continuously in the expected switching costs of a typical consumer. In equilibrium, firms offer the same prices and discounts in a mature market even if they have different market shares, and the demands faced by these firms in a new market become more elastic. Firms are worse off engaging in the discriminatory pricing, while consumers need not necessarily benefit from it. There is costly equilibrium switching of consumers, which creates a dead‐weight loss to the society.
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Citations
Cited by
Goldfarb, A., & Tucker, C. (2019) · Journal of Economic Literature · doi:10.1257/jel.20171452 · Cited by 2,744
Acquisti, A., Taylor, C., & Wagman, L. (2016) · Journal of Economic Literature · doi:10.1257/jel.54.2.442 · Cited by 1,283
Dynamic targeted pricing with strategic consumers
Chen, Y., & Zhang, Z. J. (2009) · International Journal of Industrial Organization · doi:10.1016/j.ijindorg.2008.03.002 · Cited by 144
Self-citationBig data and personalized price discrimination in EU competition law
Townley, C., Morrison, E., & Yeung, K. (2017) · Yearbook of European Law · doi:10.1093/yel/yex015 · Cited by 61
CUSTOMER POACHING AND ADVERTISING*
ESTEVES, R. B. (2009) · The Journal of Industrial Economics · doi:10.1111/j.1467-6451.2009.00372.x · Cited by 55
Personalized pricing and advertising: Who are the winners?
Esteves, R.-B., & Resende, J. (2019) · International Journal of Industrial Organization · doi:10.1016/j.ijindorg.2018.11.003 · Cited by 38
Behavior-based price discrimination and customer information sharing
De Nijs, R. (2017) · International Journal of Industrial Organization · doi:10.1016/j.ijindorg.2016.12.003 · Cited by 34
Behavior-based pricing under imperfectly informed consumers
Esteves, R.-B., & Cerqueira, S. (2017) · Information Economics and Policy · doi:10.1016/j.infoecopol.2017.06.007 · Cited by 34
Non-risk price discrimination in insurance: Market outcomes and public policy
Guy Thomas, R. (2012) · The Geneva Papers on Risk and Insurance - Issues and Practice · doi:10.1057/gpp.2011.32 · Cited by 22
Personalized pricing versus history-based pricing: implications for privacy policy
Miettinen, T., & Stenbacka, R. (2015) · Information Economics and Policy · doi:10.1016/j.infoecopol.2015.10.003 · Cited by 15
Metadata
- Authors
- Chen, Y.
- Venue
- Journal of Economics & Management Strategy
- Publisher
- Wiley
- Published
- 1997-12
- Volume
- 6
- Issue
- 4
- Pages
- 877-897
- ISSN
- 1058-6407 (ISSN-L)
- 1530-9134
- OpenAlex
- W2170494975
- Cited by
- 386
- References
- 0
- FWCI
- 9.41
- Type
- journal article
- Language
- en
- Open access
- closed
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
