| Abstract |
One of the perennial questions in the switching cost literature is whether switching costs enhance ｏｒ harm firms’ profits. In this paper, we ask what types of switching costs, among those that are commonly observed, enhance firm’s profits provided that firms can i) endogenously influence the magnitude of switching costs and ii) price-discriminate based on the consumers’ past purchase behavior. Acknowledging that many real/social switching costs need to be created before price competition begins, we show that firms minimize this type of switching costs because these intensify intertemporal price competition. On the other hand, firms create maximal contractual/pecuniary switching costs as these are usually set up in between price-competing stages. We show additionally that firms prefer not to create real/social switching costs even when they do not have opportunities to create contractual/pecuniary switching costs later in competition. The results highlight the ｉｍｐｏｒｔance of timing of creation that is embedded in different types of switching costs. |