The Intertemporal Dynamics of Consumer Lock-In

Abstract

This article examines how dynamic changes in information cost structure and time preferences affect consumers' search and switching behavior over time and lead to lock-in. The information cost structure is conceptualized as a tradeoff of initial setup costs and ongoing usage costs. Lock-in is defined as consumers' decreased propensity to search and switch after an initial investment, which is determined both by a preference to minimize immediate costs and by an inability to anticipate the impact of future switching costs. The results of three experiments support the proposed mechanism. Experiment 1 shows that a small initial investment is sufficient to produce lock-in. Experiment 2 shows that the results of a prior investment on lock-in are not due to psychological commitment but to a shift in relative costs of incumbent and new options. Experiment 3 shows that respondents fail to anticipate how their prior investment will lock them in.

Keywords: Intertemporal Choice, Lock-In, Time Preferences, Consumer Choice, Loyalty

JEL Classification: D9, M0, M3