Customer poaching and brand switching

Drew Fudenberg, Jean Tirole

    Research output: Contribution to journalArticlepeer-review

    364 Scopus citations

    Abstract

    Firms sometimes try to "poach" the customers of their competitors by offering them inducements to switch. We analyze duopoly poaching under both short-term and long-term contracts assuming either that each consumer's brand preferences are fixed over time or that preferences are independent over time. With fixed preferences, short-term contracts lead to poaching and socially inefficient switching. The equilibrium with long-term contracts has less switching than when only short-term contracts are feasible, and it involves the sale of both short-term and long-term contracts. With independent preferences, short-term contracts are efficient, but long-term contracts lead to inefficiently little switching.

    Original languageEnglish (US)
    Pages (from-to)634-657
    Number of pages24
    JournalRAND Journal of Economics
    Volume31
    Issue number4
    DOIs
    StatePublished - 2000

    ASJC Scopus subject areas

    • Economics and Econometrics

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