Behaviour-based price discrimination in "Switching Markets''

Abstract

This paper studies discriminatory and non-discriminatory pricing when firms' customers have heterogeneous switching costs and market shares are asymmetric. This setting encompasses many markets in which established firms are challenged by disruptive entrants and have yet come under regulatory scrutiny. We identify circumstances under which regulatory interventions to protect ``back-book'' customers from exploitation are counterproductive. And we show how most-favoured customer clauses can be discriminatory and would benefit firms, but firms do not have an incentive to implement them unilaterally