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Definition

Switching Costs

Switching costs are the fixed costs that buyers encounter when switching or charging from one supplier to another. If switching costs are high, a buyer will be less likely to switch suppliers. For example, suppliers often provide their largest buyers with specialized software that makes it easy to buy their products. After the buyer spends time and effort learning the supplier’s ordering and inventory management systems, it will be less likely to want to spend time and effort learning another supplier’s system.

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