Supplier surfing: Competition and consumer behavior in subscription markets

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2003-06-01

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Abstract

I 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.

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Scholars@Duke

Taylor

Curtis R. Taylor

Professor of Economics

Taylor's primary research interest  is microeconomic theory with emphasis on the areas of Industrial Organization, Political Economy, and the Theory of Contracts.  He has worked on a variety of topics such as: the optimal design of research contests, the causes and timing of market crashes, and consumer privacy. Professor Taylor's research has been supported by grants from the National Science Foundation, the U.S. Department of  Agriculture, and the Texas Higher Education Coordinating Board, among others.



He served as an associate editor for the  American Economic Review from 1995 to 2001, and is currently on the editorial boards of the RAND Journal of Economics, the Journal of Industrial Organization, the BE  Journal of Theoretical Economics, and the BE Journal of Economic Analysis and Policy.


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