Competition and Dynamic Pricing in Markets with Consumer Switching Costs

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Abstract

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.
Original languageEnglish
Publication date2019
Number of pages36
Publication statusPublished - 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 20191 Sep 2019
Conference number: 46
https://www.barcelonagse.eu/earie2019

Conference

Conference 46th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2019
Number46
LocationCiutadella of the Universitat Pompeu Fabra
CountrySpain
CityBarcelona
Period30/08/201901/09/2019
Internet address

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