Switching Costs.

Book section

Switching costs arise when transactions, learning, or pecuniary costs are incurred by a user who changes suppliers (including for ‘follow-on’ or ‘aftermarket’ products such as refills and repairs). The ex post market power that switching costs give suppliers need not create inefficiencies, and early ‘bargain’ prices can compensate consumers for later ‘rip-off’ pricing. More often, however, switching costs make new entry hard, distort firms’ product ranges, raise firms’ profits and lower consumer and social welfare. Similar issues arise in ‘shopping-cost’ markets. Policymakers should scrutinize markets where firms deliberately choose incompatibility.

Authors: Klemperer, P

• Publisher: Palgrave Macmillan
• Host title: The New Palgrave Dictionary of Economics
• Pages: 125 - 128
• Publication date: 2008-01-01
• Edition: 2nd
• DOI: 10.1057/9780230226203.1661
• ISBN: 9780333786765
• Language: English