A theoretical analysis of endogenous and exogenous switching costs

Mengze Shi ()
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Mengze Shi: University of Toronto

Quantitative Marketing and Economics (QME), 2013, vol. 11, issue 2, No 2, 205-230

Abstract: Abstract This paper studies the relation between endogenous and exogenous switching costs. A firm can determine the size of endogenous switching costs, but not the size of exogenous switching costs. This paper develops a game theoretical model to investigate whether these two types of switching costs complement or substitute each other in a firm’s strategy. Our analysis uncovers a substituting relationship, i.e., the equilibrium size of endogenous switching costs should be higher in markets with lower exogenous switching costs. In the equilibrium, the endogenous switching costs cause profit losses to competing firms; the amount of profit loss decreases with the size of exogenous switching costs.

Keywords: Switching costs; Price competition; Loyalty rewards (search for similar items in EconPapers)
JEL-codes: L11 L13 M3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:qmktec:v:11:y:2013:i:2:d:10.1007_s11129-012-9129-4

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DOI: 10.1007/s11129-012-9129-4

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