Business, Management and Accounting
4 years ago

Switching costs drive down prices, increase competition in 800-number market.

The RAND Journal of Economics
Do switching costs make markets more or less competitive? The case of 800‐number portability
V. Brian Viard

Paper Summary

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Switching costs can affect price competition in markets. When AT&T and MCI lowered prices for toll-free services due to 800-number portability, it showed that lower switching costs increased competition. Prices dropped more for larger contracts, indicating more lock-in for bigger users. The changes in prices before and after portability was announced were in line with what was expected.