Managing Switching Costs in Multiperiod Procurements with Strategic Buyers
Abstract
This article examines the use of switching costs by long-lived strategic buyers to
manage dynamic competition between rival suppliers. The analysis reveals how buyers
may employ switching costs to their advantage. We show that when switching costs are
high, a buyer may induce suppliers to price more competitively by credibly threatening
to replace the incumbent supplier with his rivals. The implications of this finding
for adoption of technology and firm organization are explored in settings in which
the buyer is integrated with the suppliers and where the buyer is an outsourcer.
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Tracy R. Lewis
Walter M. Upchurch, Jr. Distinguished Professor of Business Administration
Tracy Lewis is Professor of Economics at the Fuqua School of Business at Duke University,
where he holds the Black Chair in Economics. Professor Lewis founded the Innovation
Center at the University. Prior to joining the Duke University Faculty in 2003, he
served on the faculties at the University of Florida, at the California Institute
of Technology, the University of British Columbia, and the University of California,
Davis. Aside from academic employment, he has also held positions at the Fed
Huseyin Yildirim
Professor of Economics
Professor Yildirim joined Duke Economics in 2000 after receiving a Ph.D. from the
University of Florida. He is an applied microeconomic theorist with broad interests.
He has written on such varied topics as dynamic procurement auctions, charitable fundraising,
committee design, and, most recently, career concerns in teamwork and tournaments.
His work has appeared in top economics journals, including American Economic Review,
Review of Economic Studies, Journal of Economic Theory, and RAND J
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