Friday, October 25, 2013
Tom Bjorkroth, Finnish Competition and Consumer Authority asks LOYAL OR LOCKED-IN—AND WHY SHOULD WE CARE?
ABSTRACT: Consumer switching costs confer market power on firms. This is verified by the strands of theoretical and empirical research in economics. However, switching costs arise from a number of different sources. This article shows that the composition of the total switching costs, although acknowledged, has been of secondary importance to economic research when it comes to the use of the concept as a hypernym. This is a challenge to antitrust analysis, in which the origin of switching costs may be decisive with respect to whether observed rigidity in market dynamics needs to be dealt with in the first place. A recognition and evaluation of the different sources of switching costs matter in antitrust analysis, and may reveal the adherence to specific doctrines of economics. This article proposes a typology of switching costs that enables a systematic and eclectic approach to analyzing the role of switching costs as a source of market power or as an impediment to consumer choice. The approach can gain antitrust enforcement, competition advocacy, and the implementation of consumer protection policies.