Asymmetric switching costs can improve the predictive power of shy's model

Abstract : Economists Oz Shy introduced the definition of undercut-proof property ("UPP") prices in a model of Bertrand competition involving loyal consumers ('A quick-and-easy method for estimating switching costs', International Journal of Industrial Organization, Vol. 20, pp. 71-87, 2002). Shy's seminal paper allows applied researchers to measure the switching costs faced by locked-in consumers. Although there is increasing interest in demonstrating consumer inertia in retail markets opened up to competition, Shy's approach has not received much attention. The present paper shows that the UPP's lack of appeal in this context stems from a strong assumption of identical switching costs in the theoretical model, whereas real data are more likely to reveal asymmetric values for these costs. We revisit the UPP by considering asymmetric switching costs straight from the theoretical model. Doing so enables us to show that more rigorous conditions relating the values of switching costs to market shares are necessary in order for UPP prices to be valid predictions of these costs, which consequently increases the predictive power of Shy's model. This improvement is illustrated with two examples borrowed from Shy's paper.
Type de document :
Pré-publication, Document de travail
2012
Liste complète des métadonnées

Littérature citée [7 références]  Voir  Masquer  Télécharger

https://hal-sciencespo.archives-ouvertes.fr/hal-01070341
Contributeur : Spire Sciences Po Institutional Repository <>
Soumis le : mercredi 1 octobre 2014 - 10:27:56
Dernière modification le : mardi 11 octobre 2016 - 11:59:27
Document(s) archivé(s) le : vendredi 2 janvier 2015 - 10:37:33

Fichier

wp2012-14.pdf
Accord explicite pour ce dépôt

Identifiants

Collections

Citation

Evens Salies. Asymmetric switching costs can improve the predictive power of shy's model. 2012. 〈hal-01070341〉

Partager

Métriques

Consultations de la notice

134

Téléchargements de fichiers

97