o Time : November 30, Friday 12:00 ~ 2:00 p.m.

o Venue : 9705(The 7th floor seminar room)


Endogenous Switching Cost Choice in the Face of Poaching


Abstract

We study firms’ endogenous choice of switching costs in a model where firms adopt behavior-based price discrimination. In a two-period Hotelling model of product differentiation, we show that switching costs reduce the intensity of poaching in terms of the portion of customers that switch while it is increase the intensity in terms of the aggressiveness of the poaching activity. In addition to these second-period effects, firms need to fight for market shares in the first period with switching costs. Overall, we show that firms will choose to not create switching costs at all. This is because benefits from locking-in customers are exacerbated when firms offer low discriminatory prices to each other’s customers.