Where does switching costs collide?

In industrial organization, switching costs are the real costs a buyer must bear to move from one supplier to another, which tie an existing customer to the incumbent and let a firm price above cost once that customer is captured. Klemperer's 1987 Markets with Consumer Switching Costs modelled how such costs split a market into locked-in customer bases and change how hard firms compete, and Farrell and Klemperer's 2007 handbook chapter Coordination and Lock-In synthesised the field. Here the construct is treated as a property of the market, inferred from prices, margins, and firm behaviour, rather than as a feeling a single customer reports or a barrier tied to one technology, which is how marketing and information systems approach the same idea.[1][2]

Unit

The cost a buyer bears to change suppliers, expressed as a wedge in price or profit

Recovery means

Not applicable

Measured by

Inferred from prices, margins, market shares, and demand fitted in structural or reduced-form models

In marketing, switching costs are the costs a customer perceives in leaving a current provider, and they act as a driver of retention that works alongside, and sometimes against, satisfaction. Burnham, Frels, and Mahajan's 2003 Consumer Switching Costs: A Typology, Antecedents, and Consequences sorted them into procedural (lost time and effort), financial (lost money), and relational (lost personal bonds) types, and Jones, Mothersbaugh, and Beatty's 2000 study of Switching barriers and repurchase intentions in services showed such barriers can hold a customer even when satisfaction is low. Here the construct lives in the customer's own perception and is read from survey answers, not calculated from market prices as in economics or attached to one system as in information systems.[3][4]

Unit

A customer's perceived cost of leaving a provider, on a survey scale

Recovery means

Not applicable

Measured by

Multi-item self-report scales, split into procedural, financial, and relational types

In information systems, switching costs are the sunk learning, transition effort, and lost benefits a user or organisation would incur to move off an incumbent system, and they help explain why people resist new systems and stay with a vendor. Kim and Kankanhalli's 2009 Investigating User Resistance to Information Systems Implementation: A Status Quo Bias Perspective framed these costs through status quo bias, showing that transition cost and sunk cost raise a user's resistance to changing systems. Here the construct is attached to a specific technology and its user, measured by survey items about that system, rather than to a whole market as in economics or to a general provider relationship as in marketing.[5]

Unit

A user's sunk and transition cost of moving off an incumbent system

Recovery means

Not applicable

Measured by

Survey items on transition cost, sunk cost, and uncertainty for a named system