Competition and Dynamic Pricing in Markets with Consumer Switching Costs

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

In markets with switching costs, prices increase as firms’ market shares grow. I study the effect of entry on these price dynamics in the Dutch mortgage market. I exploit incumbents’ multi-product nature to control for unobserved firm-level differences, while a difference-indifferences strategy controls for market-level shocks by exploiting that only some mortgage products faced increased competition. Consistent with a simple theoretical framework, banks with more locked-in customers decrease their interest rates less after entry than smaller incumbents. 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 date2020
Number of pages35
Publication statusPublished - 2020
EventThe 18th Annual International Industrial Organization Conference. IIOC 2020 - Northeastern University, Boston, United States
Duration: 1 May 20203 May 2020
Conference number: 18
https://cssh.northeastern.edu/economics/iioc/

Conference

ConferenceThe 18th Annual International Industrial Organization Conference. IIOC 2020
Number18
LocationNortheastern University
CountryUnited States
CityBoston
Period01/05/202003/05/2020
Internet address

Cite this

Thiel, J. (2020). Competition and Dynamic Pricing in Markets with Consumer Switching Costs. Paper presented at The 18th Annual International Industrial Organization Conference. IIOC 2020, Boston, United States. https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=IIOC2020&paper_id=101