Positioning and pricing strategies in a market with switching costs and staying costs

Yuncheol Jeong, Masayoshi Maruyama

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)47-57
Number of pages11
JournalInformation Economics and Policy
Volume44
DOIs
Publication statusPublished - 2018 Sep

Keywords

  • Behavior-based pricing
  • Customer poaching
  • Loyal customer discounts
  • Positioning
  • Staying cost
  • Switching cost

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

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