A Model of Market Power in Customer Markets
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Somaini_A model.pdf
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Author(s)
Einav, Liran
Somaini, Paulo Jose
Date Issued
December 2013
Journal
Journal of Industrial Economics
Publisher
Wiley Blackwell
Citation
Somaini, Paulo, and Liran Einav. “A Model of Market Power in Customer Markets.” J Ind Econ 61, no. 4 (December 2013): 938–986.
Version
Author's final manuscript
Abstract
We develop a model for studying dynamic competition in environments with frictions that lead to partial lock-in of customers to products. The dynamic aspects associated with customer retention and acquisition introduce pricing incentives that do not exist in more traditional, static product markets. The proposed model, while highly stylized, maintains certain symmetry properties that allow us to obtain equilibrium existence and uniqueness. We then study the comparative statics of the model and derive a closed-form relationship between average equilibrium markups and the Herfindahl index. We illustrate how the model can be used by analyzing mergers in such a dynamic environment.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1111/joie.12039
