The Daily Dinar

A scenario in which thousands - perhaps millions - of customers can successfully claim back money is unusual, the result of a regulator’s decree. But the basic situation is very common indeed. Customers have bought into a product line or ongoing service, in this case a bank account, and have decided they’re no longer happy with the way the service is provided. They decide, however, that switching to a competitor is too much trouble.

Lots of products display what economists call ”switching costs”: your mobile phone network; the supermarket whose layout you’ve mastered; a brand of car you know how to drive; your trusty PC - or should that be your trusty Mac? Sometimes the ”switching cost” is financial, but often it’s simply a matter of inconvenience.

It’s an interesting piece because it describes, in simple terms, the rationale behind the ’switching costs’ that many companies impose on customers who wish to terminate their mobile phone service, change bank accounts, and so on. It is to dissuade them from making the move and thus keeping prices high by dulling the competitiveness of that particular market. If more people switched — even if it costs them more to do so — when faced with bad service or high prices, then it would send the appropriate signal to the company to reduce its prices and improve its service. However, company-imposed switching costs (whether in terms of money or in terms of the headaches that such moves generate) ensure most people don’t and won’t.