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Estimating the Lock-in Effects of Switching Costs from Firm-Level Data


  • Gabor Kezdi

    () (Institute of Economics Hungarian Academy of Sciences)

  • Gergely Csorba

    () (Institute of Economics Hungarian Academy of Sciences)


This paper proposes a simple method for estimating the lock-in effects of switching costs from firm-level data. We compare the behavior of already contracted consumers to the behavior of new consumers as the latter can serve as contrafactual to the former. In panel regressions on firms' incoming and quitting consumers, we look at the differential response to price changes and identify the lock-in effect of switching costs from the difference between the two. We illustrate our method by analyzing the Hungarian personal loan market and find strong lock-in effects.

Suggested Citation

  • Gabor Kezdi & Gergely Csorba, 2011. "Estimating the Lock-in Effects of Switching Costs from Firm-Level Data," IEHAS Discussion Papers 1108, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  • Handle: RePEc:has:discpr:1108

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    References listed on IDEAS

    1. Pasquale Schiraldi, 2011. "Automobile replacement: a dynamic structural approach," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 266-291, June.
    2. Kim, Moshe & Kliger, Doron & Vale, Bent, 2003. "Estimating switching costs: the case of banking," Journal of Financial Intermediation, Elsevier, vol. 12(1), pages 25-56, January.
    3. Matthew Shum, 2004. "Does Advertising Overcome Brand Loyalty? Evidence from the Breakfast-Cereals Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 241-272, June.
    4. Lukasz Grzybowski, 2008. "Estimating Switching Costs in Mobile Telephony in the UK," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 113-132, June.
    5. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-666, May.
    6. Maicas, Juan Pablo & Polo, Yolanda & Javier Sese, F., 2009. "Reducing the level of switching costs in mobile communications: The case of Mobile Number Portability," Telecommunications Policy, Elsevier, vol. 33(9), pages 544-554, October.
    7. Avi Goldfarb, 2006. "State Dependence at Internet Portals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 317-352, June.
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    Cited by:

    1. Judit Karsai, 2012. "Development of the Hungarian Venture Capital and Private Equity Industry over the Past Two Decades," IEHAS Discussion Papers 1201, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    2. Zsombor Z. Méder & András Simonovits & János Vinczeb, 2012. "Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality," Economic Analysis and Policy, Elsevier, vol. 42(2), pages 171-188, September.

    More about this item


    switching costs; lock-in; panel data;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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