Product innovation when consumers have switching costs

Evens Salies

MPRA Paper from University Library of Munich, Germany

Abstract: Economists have long recognized that in free markets, incentives to innovate will be diluted unless some factors grant innovators with a temporary monopoly. Patenting is the most cited factor in the economic literature. This survey concentrates on another factor that confers innovators with first-mover advantage over their competitors, namely consumer switching costs, whereby a consumer makes an investment specific to her current seller, that must be duplicated for any new seller. In this survey, we list several components of switching costs that are relevant as regards to firm innovation behaviour. The aim of this classification is twofold. First, consumer switching cost theory has matured to the point that some classification of switching costs for both understanding innovative firm behaviour and building policy-oriented models is necessary. Second, the classification included in this paper addresses the confusion that has been existing so far regarding the distinction between ‘good’ or ‘bad’ switching costs, perceived or paid switching costs, and between switching and search costs. This paper then surveys the existing literature on the effect of switching costs on product innovation by firms and the way they compete for consumers. We also raise several important regulation and competition policy questions, using examples from the real world.

Keywords: Consumer switching costs; Search costs; Product innovation; Competition policy; Economic methodology (search for similar items in EconPapers)
JEL-codes: B21 D4 D83 L13 L14 L52 L96 (search for similar items in EconPapers)
Date: 2010-09-17, Revised 2011-02-11
New Economics Papers: this item is included in nep-bec, nep-com, nep-ino, nep-ipr and nep-pr~
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/28884/1/MPRA_paper_28884.pdf original version (application/pdf)

Related works:
Chapter: Product Innovation when Consumers have Switching Costs (2012)
Working Paper: Product innovation when consumers have switching costs (2012)
Working Paper: Product innovation when consumers have switching costs (2012)
Working Paper: Product innovation when consumers have switching costs (2011)
Working Paper: Product innovation when consumers have switching costs (2011)
Working Paper: Product innovation when consumers have switching costs (2011)
Working Paper: Product innovation when consumers have switching costs (2011)
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