The High Cost of Loving Your Phone
By DAMON DARLIN June 10, 2010
OUR cellphones have become love objects. We take them everywhere and stare at them constantly. We panic when they are lost and grieve when they die. We even clothe them.
If we covet a new one, well - I'll stop the analogy here, because economists have a better way to describe the problem: there are switching costs. That's their term for the barrier that keeps us from blithely embracing a new product.
You would think that there were few barriers to switching cellphones. But the carriers try to make it harder to switch by locking customers into two-year contracts with high early-termination fees. And each handset maker also inspires loyalty by continually making improvements in its phones, as Apple announced last week for its iPhone. Some people may complain incessantly about their iPhone and AT&T's service for it, but not that many are switching. And that's just the way the companies have intended it.
Some products have low switching costs - a car or canned corn, for instance, because it's not much bother to replace these products, and the manufacturer takes no extreme measures to keep you loyal.
Choosing a flight should be a simple matter of schedule and cost, but the airlines try to make it harder with their frequent-flier programs. Even your sandwich shop may hand out loyalty cards so your
10th sandwich is free.There are social switching costs, too. Switching free e-mail services is no small matter because of the bother of informing all your correspondents of your new address. It's one reason that Facebook doesn't worry too much that you'll dump it over some privacy imbroglio. You could move to another social network service, but would all your friends follow you?
When the switching costs are high, a company that has your loyalty can abuse it by charging more. When switching costs are removed, prices may fall.
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