Customer Poaching and Brand Switching
Volume: Volume 31, No. 4
Issue: Winter 2000
Pages: pp. 634-657
Authors: Drew Fudenberg and Jean Tirole
Title: Customer Poaching and Brand Switching
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.
JEL Classification
Marketing (M310 )
Transactional Relationships Contracts and Reputation (L140 )
Advertising (M370 )
Brand Preference Brand Contracts Firm Firms