Two at the Top: Quality Differentiation in Markets with Switching Costs Export

@unpublished{Gehrig_05_TwoatTheTop, abstract = {We explore the effects of switching costs on the subgame perfect quality decisions of oligopolists with repeated price competition. We establish a strong strategic quality premium. We show that competition for the establishment of customer relationships will eliminate low-quality firms in period 1 and that low-quality firms can survive only based on poaching profits. The equilibrium configuration is characterized by an agglomeration of two providers of top-quality as soon as switching cost heterogeneity is sufficiently significant. We demonstrate a finiteness property, according to which the two top-quality firms dominate the market with a joint market share exceeding 50 \%.}, author = {Gehrig, Thomas and Stenbacka, Rune}, citeulike-article-id = {2972796}, keywords = {competition, demand, io, market, oligopoly, paper\_02\_search\_engine\_competition, price\_discrimination, product\_differentiation, quality, switching\_costs}, month = {October}, posted-at = {2008-07-08 16:15:19}, priority = {4}, title = {Two at the Top: Quality Differentiation in Markets with Switching Costs}, year = {2005} }

TY - UNPB ID - Gehrig_05_TwoatTheTop L3 - citeulike-article-id:2972796 N2 - We explore the effects of switching costs on the subgame perfect quality decisions of oligopolists with repeated price competition. We establish a strong strategic quality premium. We show that competition for the establishment of customer relationships will eliminate low-quality firms in period 1 and that low-quality firms can survive only based on poaching profits. The equilibrium configuration is characterized by an agglomeration of two providers of top-quality as soon as switching cost heterogeneity is sufficiently significant. We demonstrate a finiteness property, according to which the two top-quality firms dominate the market with a joint market share exceeding 50 %. TI - Two at the Top: Quality Differentiation in Markets with Switching Costs KW - competition KW - demand KW - io KW - market KW - oligopoly KW - paper_02_search_engine_competition KW - price_discrimination KW - product_differentiation KW - quality KW - switching_costs AU - Gehrig, Thomas AU - Stenbacka, Rune PY - 2005/10// ER -