Equilibrium of Price Discrimination for Churn-in: Considering Consumer Re-switching

This paper analyzes price discrimination where a firm price-discriminates between its own and rival’s customers. In such situations, consumers can seek more benefits through repetitive re-switching between the firm and its rival. However, only a few previous studies have addressed such re-switching of consumers and unrealistic restrictive assumptions have been made. The model in this paper deals with repetitive re-switching with the assumption of arbitrary number of stages and multi-period benefit maximization of consumers. Our model derives the range of initial market share which provides tenable equilibrium price. Such consideration of multi-stage equilibrium helps managers to make more meaningful market expectations. Our analysis also reveals that the condition of initial market share for tenable equilibrium includes plausible results before the introduction of price discrimination. The consumers’ re-switching frustrates the firms’efforts to attract its rival’s customers in the next period. Moreover, considering re-switching, the discount offered by a firm for switchers not only attracts its rival’s customers but also sacrifices its own customers. Therefore, re-switching by consumers alleviates price competition between the two firms.