The Research Of Firm’s Financial Decisions And Market Strategies Based On Consumer Switching Costs

With the process of financial liberalization and financial deepeningaccelerated, the virtual economy will affect the real economy deeply.Especially the development of economic globalization in present day, as thevirtual economy and the real economy’s main part, capital market and productmarket has a strong link. In firm’s profit-maximizing process, the overallconsideration to its capital structure and product market competition strategy isone of the major success factors in dealing with the external risks. On the otherhand, consumer behavior is an important factor in finfluencing the firm’sproduct market strategy, so how to consider the view of consumer switchingcosts in firm’s Financial decisions and product market strategy is undoubtedlya major expansion of the existing literature, and is also a more comprehensiveand more realistic interpretation in business strategy choices. Therefore, thisarticle based on consumer switching costs and the limited liability effect of debt,builded a duopoly competition model of horizontal differentiation, using acombination of game theory and computer simulation to be an analysismethods, inspection the firm’s Financial decisions in the capital market and thecompetitive strategy in product market when the customer switching costsexisted.Through the theoretical analysis and the simulation of the model, this papercame to two main conclusions. First, customer switching costs changed has adual effect to the market equilibrium, that is, customer switching costs will notonly increase the competitive phase of the new market level, but also increasefirm’s market power in a mature market, and the former bigger than the latter,so customer switching costs will increase the degree of the competition in themarket. Due to market competition increased, taken the conservative behaviorto ensure the financial survival is a rational business decision-making, so high customer switching costs will lower the market price, increased competition,and inhibit the financing of enterprises. Second, changes in size of the marketis positive volatility with corporate finance. That is when market scaleincreased, firms are willing to increase the debt, enhance their marketcompetitiveness and to get more benefits.Finally, this paper did a case study in the state of competition among ChinaMobile and China Unicom in2001-2006. By doing a detailed analysis of thebalance of operator power and the customer switching costs in China mobilemarkets at that time, and consider the related conclusions of scholars in thatChina Mobile’s customer switching costs is greater than China Unicom’s,explain the low-cost strategy and the differences financing situation betweenmobile operators which facing market competition.