Supplier Surfing: Competition and Consumer Behavior in Subscription Markets

Posted: 28 Jul 2003

See all articles by Curtis R. Taylor

Curtis R. Taylor

Duke University - Department of Economics

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Abstract

Explore the practice of offering subscribers enticements to switch suppliers. This type of competition is natural in subscription markets for homogeneous goods and services. Efficiency is impaired because subscribers are induced to expend resources changing suppliers. Subscription markets are fully competitive only when three or more firms serve the industry. In this case, the price offered to switchers is below cost, while nonswitchers pay a premium. Each firm earns rent on its customer base, but zero expected profit on each new subscriber it attracts. When firms can track switching behavior, consumers may change suppliers in order to establish reputations.

Suggested Citation

Taylor, Curtis R., Supplier Surfing: Competition and Consumer Behavior in Subscription Markets. RAND Journal of Economics, Vol. 34, No. 2, Summer 2003. Available at SSRN: https://ssrn.com/abstract=406685

Curtis R. Taylor (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1827 (Phone)
919-684-8974 (Fax)

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