TY - JOUR
T1 - Positioning and pricing strategies in a market with switching costs and staying costs
AU - Jeong, Yuncheol
AU - Maruyama, Masayoshi
N1 - Funding Information:
We would like to thank the editor Marc Bourreau, anonymous two referees, participants at 2nd Asia Pacific Industrial Organisation Conference at Auckland, 2017 and 90th Annual Conference of Western Economic Association International at Hawaii, 2015, and seminar participants at Nanzan University, Kobe University, and Kyoto University for their many helpful comments on an earlier version of this article. The research for this study was supported by a Grant-in-Aid for Scientific Research from the JSPS KAKENHI 24330080, 25780270, 26285098, and 16H03670.
Funding Information:
We would like to thank the editor Marc Bourreau, anonymous two referees, participants at 2nd Asia Pacific Industrial Organisation Conference at Auckland, 2017 and 90th Annual Conference of Western Economic Association International at Hawaii, 2015, and seminar participants at Nanzan University, Kobe University, and Kyoto University for their many helpful comments on an earlier version of this article. The research for this study was supported by a Grant-in-Aid for Scientific Research from the JSPS KAKENHI 24330080, 25780270, 26285098, and 16H03670.
Publisher Copyright:
© 2018 Elsevier B.V.
PY - 2018/9
Y1 - 2018/9
N2 - We analyze positioning and pricing strategies in a two-period duopoly where consumers have heterogeneous switching costs and staying costs. In the second period, we show that firms offer discounts to new customers in a market where there are more inertial consumers with large switching costs, while firms offer discounts to past customers in a market where there are more variety-seeking consumers with large staying costs. If in the second period of our model there exist both inertial consumers and variety-seeking consumers, horizontal product differentiation is minimized and both firms locate at the center of the Hotelling line market. Furthermore, when consumers are relatively sophisticated (forward-looking), behavior-based price discrimination (BBPD) hurts firms’ profits as shown in the previous literature. However, when consumers are sufficiently naive (or myopic) and do not care much about the second period when making first-period decisions, we find that BBPD can be profitable.
AB - We analyze positioning and pricing strategies in a two-period duopoly where consumers have heterogeneous switching costs and staying costs. In the second period, we show that firms offer discounts to new customers in a market where there are more inertial consumers with large switching costs, while firms offer discounts to past customers in a market where there are more variety-seeking consumers with large staying costs. If in the second period of our model there exist both inertial consumers and variety-seeking consumers, horizontal product differentiation is minimized and both firms locate at the center of the Hotelling line market. Furthermore, when consumers are relatively sophisticated (forward-looking), behavior-based price discrimination (BBPD) hurts firms’ profits as shown in the previous literature. However, when consumers are sufficiently naive (or myopic) and do not care much about the second period when making first-period decisions, we find that BBPD can be profitable.
KW - Behavior-based pricing
KW - Customer poaching
KW - Loyal customer discounts
KW - Positioning
KW - Staying cost
KW - Switching cost
UR - http://www.scopus.com/inward/record.url?scp=85045424190&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85045424190&partnerID=8YFLogxK
U2 - 10.1016/j.infoecopol.2018.03.001
DO - 10.1016/j.infoecopol.2018.03.001
M3 - Article
AN - SCOPUS:85045424190
SN - 0167-6245
VL - 44
SP - 47
EP - 57
JO - Information Economics and Policy
JF - Information Economics and Policy
ER -