Are there implications outside the breakfast cereal market?
Sure. What we in marketing call inertia, economists call switching costs. If you are an Apple Computer user, and the Apple is the only computer you are used to using, you would have enormous costs to switch to an IBM-compatible computer. Apple knows that someone who tries Apple is going to get hooked to Apple. When the market is just beginning to be born, Apple has an incentive to give computers away for free, so that consumers try their brand first. What Apple loses by way of profit in the first few years it can more than make up in the later years once it has a solid base. Economics made the point that there is an incentive to charge high prices in the markets that are categorized by switching costs or inertia. Our study is the first that empirically proves that state dependence is indeed going on outside durable goods markets; were not using computers or TVs, but instead repeat-purchase products like breakfast cereal that are bought once every two weeks. Q: Back to the impact on pri
