Question

Could someone help me to take notes for me from this paragraph . Thank you in advance

s benefits, dipe, Hotels, 240 are not used wild on cumulativemented similar loyalty pro sinesses and belt ance biste nes Wet hind costs and the 15 percore locked in by th PART 1 Microeconomic Analys forfeited if they are not used within a certain time period and many h as preferential service, are based on cumulative usage of the airline cery stores, and local retailers have also implemented similar los The number of such programs is expected to increase as busines access to databases on consumer buying habits. Switching Costs Example Direct deposits of paychecks, Socia pension checks and automatic payments of utility, phone, and insuran y increased the switching costs among bank checking account custom years. These innovations have caused the 15 percent of customers wh bank every year to decline as more customers are locked in by th transactions to their accounts. In response, many banks have made efforts to lure customers from their competitors by offering to contact and employers for their customers to help change the automatic transar their old to their new accounts. These switching services may be used stra as certain services may be available only to customers who purchase prem more profitable services from the bank." who leave the the stomat nade inte tact companies nsactions sa strategic premium lead to lower Search Switching Costs and the Internet In the late 1990s and early many believed that e-commerce and the use of the Internet would lead to intense price competition due to less product differentiation, lower costs, and lower fixed costs. The geographical dimension of product di entiation would be eliminated, price searches would be facilitated online Internet firms would likely have lower fixed costs leading to greater entry and more competition. However, research has shown that there is price dispersion online, and that online prices may not be much lower than offline prices amount of price dispersion in markets with "branded" Web sites is substantis and price dispersion has been found in markets where consumers use price search engines. These results mean that firms can develop market power even on the Internet Amazon.com and Bames & Noble online do not have the geographic differentiation that occurs in the offline world, but they compete on the basis of consumer preler ences for service, atmosphere, and reputation. Search costs also may not below on the Internet because retailers can engage in strategies such as offering.com plicated menus of prices, bundling products, personalizing prices, or making process of comparing prices complex. Because Internet firms such as Amazon.de offer multiple products, they may set prices lower today so that customers incur the real or psychic costs of trying out another bookstore and will con purchase from Amazon in the future. As in the offline world, Internet Arms set low prices for low quality items on Pricewatch and then design their we to persuade consumers who visit to purchase additional items or higher items at higher prices." n their web sites Jane J. Kim, "Banks Push Harder to Get You to Switch, Wall Street Journal October 123 This discussion is based on Glenn Ellison and Sara Pish Internet, Journal of Econet unah October 13 2006

Answer 1

Switching costs example:

Direct deposits and automatic payments has increased the switching costs. there has been a 15% decrease in the number of consumers using direct banking, instead they use automated transactions. Many banks have made efforts to attract customers by offering help to change the automatic transactions from their old to new accounts. Banks use this method strategically that customers with premium account or more profitable service receivers only will be benefited.

Switching costs and the internet:

In the past decades many believed that use of internet causes more price competition due to low search cost. There wont be geographical dimension of product differentiation lower costs in internet firms lead to great entry and more competition. Researches show that the online price is not very lower than the offline price. Price dispersion is found in markets where consumers use price search engines. Firms can develop market power even in online platform. Famous online shopping sites do not have geographical differentiation they compete on the basis of consumer reference for service. Many internet firms like Amazon set a very low price for a commodity today so that people believing that rice wont increase further buy goods from Amazon in future also. Internet firms can fix low price for low quality products and high price for high quality products.

Network Externalities:

They act as a barrier to entry. The value of a product depends on the number of customers using the product. Examples of such products include ATMs. One brand of a product become the industrial standard. They can be considered demand side economies of scale. These economies are prominent in the information industry.