A Short Survey on Switching Costs and Dynamic Competition

When consumers have switching costs of changing the product that they purchase from period to period firms may compete aggressively to attract them, to potentially take advantage of the consumers’ future inertia. Similarly, consumers may foresee that they may be held up, and adjust their choices. This paper considers these market forces in the literature on switching costs, while focusing on the effects of (1) firms being forward-looking, (2) consumers being forward-looking, (3) degree of stability of consumer preferences, and (4) market time horizon