Premium
Differentiation‐Induced Switching Costs and Poaching
Author(s) -
Gehrig Thomas,
Stenbacka Rune
Publication year - 2004
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.2004.00026.x
Subject(s) - poaching , product differentiation , incentive , microeconomics , competition (biology) , economics , ex ante , industrial organization , business , cournot competition , ecology , population , demography , macroeconomics , sociology , biology
We show that the presence of sufficiently significant switching costs, which are increasing in the degree of product differentiation, generates an equilibrium configuration with maximal differentiation within the framework of a Hotelling model with linear transportation costs. The equilibrium with maximal differentiation offers a formalization of the idea that competing firms have noncooperative incentives to establish maximal switching cost barriers. The equilibrium incentives for commitments to high switching costs can be explained with poaching profits, which are increasing in the switching costs. Ex ante competition for market shares in period 1 is unable to eliminate these poaching profits .