1987/01/01 by Paul Klemperer · 1 citation
Economics, Econometrics and Finance · Business, Management and Accounting · #Merger and Competition Analysis #Consumer Market Behavior and Pricing #Digital Platforms and Economics
paper · doi:10.2307/3038233
In many markets consumers have transaction or learning "switching costs" between functionally undifferentiated brands. New entry into such markets may be deterred either by large customer bases and/or large switching costs, which deny customers to an entrant, or by small customer bases and/or small switching costs, which mean an incumbent will respond aggressively to an entrant. An incumbent threatened by entry may therefore price either lower or higher than otherwise. A firm with the right to enter early may make less profits over time than an otherwise identical firm that is unable to enter the market until later.