The Value of Switching Costs

Joint with: Gary Biglaiser and Gergely Dobos

We extend the standard dynamic model with switching costs by assuming that different consumers have different switching costs. We show that this changes considerably the type of strategies used by the firms, with some unexpected consequences. In particular, we show that there are cases where an increase in the switching costs of all consumes can lead to a decrease in the profits of the incumbent. This is a very preliminary and incomplete version. It certainly contains a number of mistakes and many typos. Comments are very welcome.

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