Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296366 
Year of Publication: 
2022
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 17 [Issue:] 2 [Year:] 2022 [Pages:] 617-650
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
We introduce a game-theoretic model with switching costs and endogenous references. An agent endogenizes his reference strategy and then, taking switching costs into account, he selects a strategy from which there is no profitable deviation. We axiomatically characterize this selection procedure in one-player games. We then extend this procedure to multi-player simultaneous games by defining a Switching Cost Nash Equilibrium (SNE) notion, and prove that (i) an SNE always exists; (ii) there are sets of SNE which can never be a set of Nash Equilibrium for any standard game; and (iii) SNE with a specific cost structure exactly characterizes the Nash Equilibrium of nearby games, in contrast to Radner's (1980) $\varepsilon$-equilibrium. Subsequently, we apply our SNE notion to a product differentiation model, and reach the opposite conclusion of Radner (1980): switching costs for firms may benefit consumers. Finally, we compare our model with others, especially K\"{o}szegi and Rabin's (2006) personal equilibrium.
Subjects: 
Switching cost Nash equilibrium
choice
endogenous reference
switching costs
epsilon equilibrium
JEL: 
D00
D01
D03
C72
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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