Oz Shy

"A quick-and-easy method for estimating switching costs"
JEL codes: C81, D12, L11
Keywords: switching costs, empirical estimation of switching costs, undercutting

Abstract: I develop and test a method for a quick-and-easy calculation of consumer switching costs among brands in a given industry. The theory developed and tested here maps observed brands' prices and market shares onto the switching costs which deter a consumer of a specific brand from switching to any other competing brand. Then, I demonstrate how users' switching costs can be directly calculated in two different industries: (a) the Israeli cellular phone market, and (b) the Finnish market for bank deposits. This calculation method can be user to calculate switching costs in a wide variety of other industries, such as the airline, health services, computers, software, telecommunication, and more.