High switching costs and customer lock-in tactics do not necessarily cause problems for competition or exclude competitors. Most service agreements that seek to lock-in customers do not warrant regulatory interference. Indeed, in some cases, high switching costs may trigger market responses that improve efficiency.
Cases of lock-in need to be considered on a case by case basis, taking account of:
- The degree of competition in the market,
- Whether the firm in question has market power, or a dominant position, and
- The effect of the locking-in arrangements on competition. Are the arrangements blocking efficient competitors?
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Customer Lock-In