Publication Type

Journal Article

Version

acceptedVersion

Publication Date

1-2022

Abstract

This paper examines the relative advantages of single-product and multiproduct firms following changes in customer switching costs. Whereas a single-product firm can closely tailor offerings to customers' needs, a multiproduct firm can create value for customers in the form of flexibility, allowing them to change between product varieties as preferences evolve without needing to switch providers. We argue that this value-creation mechanism is more effective when customers face high switching costs and explore this prediction in the mobile telecommunications sector, using an exogenous policy change (mobile number portability) that suddenly decreases customer switching costs. Our results reveal that when customer switching costs fall, multiproduct firms see lower growth than single-product firms, and entry with a multiproduct offering becomes less frequent than before. The study highlights how customer switching costs can enable or inhibit choices of firm scope.

Keywords

Customer switching costs, Demand-side perspective, Firm scope, Flexibility, Market frictions, Multiproduct

Discipline

Sales and Merchandising | Strategic Management Policy

Research Areas

Strategy and Organisation

Publication

Management Science

Volume

68

Issue

1

First Page

316

Last Page

332

ISSN

0025-1909

Identifier

10.1287/mnsc.2020.3913

Publisher

Institute for Operations Research and Management Sciences

Copyright Owner and License

Authors

Comments

Glueck Best Paper Award, Strategic Management Division, AOM Annual Conference 2020

Additional URL

https://doi.org/10.1287/mnsc.2020.3913

Download

Share

COinS