Do switching costs make markets more or less competitive? The case of 800‐number portability

2007/03/01 by V. Brian Viard
Business, Management and Accounting · Engineering · #Consumer Market Behavior and Pricing #Digital Platforms and Economics #ICT Impact and Policies

paper · doi:10.1111/j.1756-2171.2007.tb00049.x

openalex publication_date 2007/03/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

Do switching costs reduce or intensify price competition if firms charge the same price to existing and new consumers? I study 800‐number portability to determine how switching costs affect price competition under a single price regime. AT&T and MCI reduced their toll‐free services prices in response to portability, implying that reduced switching costs increased competition. Despite rapid market growth, gains from higher prices to “locked‐in” consumers exceeded the incentives to capture new consumers. Prices on larger contracts dropped more, consistent with greater lock‐in for larger users. Price changes between portability's announcement and implementation are consistent with rational expectations.

Citations

• Multi-Period Competition with Switching Costs
• Inference with Difference-in-Differences and Other Panel Data

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