In markets with switching costs, firms increase their price as their market share grows. I study the effect of entry on these price dynamics in the Dutch mortgage market. Since en- try occurred in a subset of markets, I control for market-level shocks with a differences-in- differences strategy. Moreover, I exploit the multi-product nature of incumbents to control for unobserved firm-level differences. Consistent with a simple theoretical framework, banks with more locked-in customers decrease their interest rates less after entry. This can explain why policies that encourage competition often disappoint in markets with switching costs. I also discuss implications for competition policy.
|Number of pages||36|
|Publication status||Published - 2019|
|Event|| 46th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2019 - Ciutadella of the Universitat Pompeu Fabra, Barcelona, Spain|
Duration: 30 Aug 2019 → 1 Sep 2019
Conference number: 46
|Conference||46th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2019|
|Location||Ciutadella of the Universitat Pompeu Fabra|
|Period||30/08/2019 → 01/09/2019|
Thiel, J. H. (2019). Competition and Dynamic Pricing in Markets with Consumer Switching Costs. Paper presented at 46th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2019, Barcelona, Spain.