The first two chapters of Part III examined how firms choose two main elements of the marketing mix, namely product positioning and advertising, in order to gain market power. In that sense, market power was endogenous as it resulted from the firms' strategic choices. In this chapter, strategic choices of this kind are absent as we mostly consider sources of market power that are exogenous to the firms' conduct. In a nutshell, what confers market power to the firms is the presence of some form of inertia in the purchasing behaviour of the consumers. As we will observe throughout this chapter, such inertia may come from different sources and may enable firms to deploy various strategies.

In Section 7.1, we consider environments in which firms sell identical products and do not make any advertisement. We show that firms can nevertheless enjoy market power if consumers are imperfectly informed about the existence and prices of available products. Not only are prices above marginal costs, but also prices may differ across firms and/or across time, a phenomenon known as price dispersion. We further show that such price dispersion may persist even when consumers incur costs to search for information about products and prices.

In Section 7.2, we consider markets where switching firms is costly for the consumers, which induces them to purchase repeatedly from the same firm. This gives firms market power over those consumers who have purchased from them in the past.