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Quantitative Marketing and Economics

, Volume 11, Issue 2, pp 205–230 | Cite as

A theoretical analysis of endogenous and exogenous switching costs

  • Mengze Shi
Article

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 

JEL classification

L11 L13 M3 

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.Rotman School of ManagementUniversity of TorontoTorontoCanada

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