The degree of collusiveness of a market with consumer switching costs
is analyzed in an infinite-horizon model of duopolistic competition. I
n contrast with previous analyses, we assume that firms compete for th
e demand for a homogeneous good by setting prices simultaneously in ea
ch period. This problem is formulated as a simple stochastic game, and
a symmetric stationary Markovian perfect equilibrium with distinctive
economic features is studied. We show that switching costs unambiguou
sly relax price competition in equilibrium but that, on the contrary,
they may make tacit collusion more difficult to sustain. (C) 1995 Acad
emic Press Inc.