ENDOGENOUS SWITCHING COSTS IN A DUOPOLY MODEL

We analyze the effect of alternative pricing policies on the competitive outcome in a two-period, differentiated product duopoly model. If firms can precommit to a second period price for their loyal customers equilibrium profits fall, but if they precommit to a discount, then the equilibrium profits increase. In either case, switching costs are endogenized: in period two firms discriminate against newcomers. © 1990.