Author
Güney, Begüm, Richter, M.
Publication Date
2022-05-25
Publication Place
-
Wiley
Subject
C72, Choice, D00, D01, D03, Endogenous reference, Epsilon equilibrium, Switching cost Nash equilibrium, Switching costs
Type
Periodical
Language
English
Digital
Yes
Manuscript
No
Library
Özyeğin University
Library Asset ID
1933-6837
Record ID
9ec71535-af3d-4a2e-ac8c-23a9b90b72de
Library Location
Economics
Date
2022-05-25
Sample Text
We introduce a game-theoretic model with switching costs and endogenous references. An agent endogenizes his reference strategy, and then taking switching costs into account, he selects a strategy from which there is no profitable deviation. We axiomatically characterize this selection procedure in one-player games. We then extend this procedure to multiplayer simultaneous games by defining a Switching Cost Nash Equilibrium (SNE) notion, and prove that (i) an SNE always exists; (ii) there are sets of SNE, which can never be a set of Nash equilibrium for any standard game; and (iii) SNE with a specific cost structure exactly characterizes the Nash equilibrium of nearby games, in contrast to Radner's (1980) ε-equilibrium. Subsequently, we apply our SNE notion to a product differentiation model, and reach the opposite conclusion of Radner (1980): switching costs for firms may benefit consumers. Finally, we compare our model with others, especially Köszegi and Rabin's (2006) personal equilibrium.
DOI
10.3982/TE4169
Cilt
17
