Observatoire français des conjonctures économiques
Collection:
Document de travail de l'OFCE
: 2011-07
Mots-clés:
[en] Consumer switching costs, Search costs, Product innovation, Competition policy, History of economic thought
JEL:
B21,
D4,
D83,
L13,
L14,
L52,
L96
Résumé:
[en] some factors grant innovators with a temporary monopoly. Patenting is the most cited factor in the
economic literature. This survey concentrates on another factor that confers innovators with firstmover
advantage over their competitors, namely consumer switching costs, whereby a consumer
makes an investment specific to her current seller, which must be duplicated for any new seller. In this
survey, we list several components of switching costs that are relevant as regards to firm innovation
behaviour. The aim of this classification is twofold. First, consumer switching cost theory has matured
to the point that some classification of switching costs for both understanding innovative firm
behaviour and building policy-oriented models is necessary. Second, the classification included in this
paper addresses the confusion that has been existing so far regarding the distinction between ‘good’ or
‘bad’ switching costs, perceived or paid switching costs, and between switching and search costs. This
paper then surveys the existing literature on the effect of switching costs on product innovation by
firms and the way they compete for consumers. We also raise several important regulation and
competition policy questions, using examples from the real world.
