Why do consumers not switch? An experimental investigation of a search and switch model

Abstract

AbstractSearch and switching costs are two market frictions that are well known in the literature for preventing people from switching to a new and cheaper provider. Previous experimental literature has studied these two frictions in isolation. However, field evidence shows that these two frictions frequently occur together. Recently, a theoretical framework has been developed (Wilson in Eur Econ Rev 56(6):1070–1086) which studies the interplay between these two costs. We report on an experiment testing this theory to see if individual behaviour with search and switching costs is in line with the theoretical predictions derived from the optimal choice rule of Wilson. The results show the crucial role of the search strategy: not only, according to Wilson model, the search cost has a greater deterrent impact on search than the switching costs, but also the sub-optimality of the search strategy is the major source of sub-optimality in the switching behaviour.