Munich Personal RePEc Archive

On Quantity Competition With Switching Costs

Langus, Gregor and Lipatov, Vilen (2008): On Quantity Competition With Switching Costs.

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Abstract

We build a simple model of quantity competition to analyze the effect of switching costs on equilibrium behavior of duopolists. We characterize the industry structure as a function of initial sales of two firms. Contrary to the literature, initial asymmetries persist in our model even though the firms are identical. When the disparity between initial sales is large, the smaller firm may become very aggressive and get more than half of the market in equilibrium. When the firms have similar initial positions, they tend to be locked in them.

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