Güney, BegümRichter, M.2023-07-132023-07-132022-05-251933-6837http://hdl.handle.net/10679/8490https://doi.org/10.3982/TE4169We introduce a game-theoretic model with switching costs and endogenous references. An agent endogenizes his reference strategy, and then taking switching costs into account, he selects a strategy from which there is no profitable deviation. We axiomatically characterize this selection procedure in one-player games. We then extend this procedure to multiplayer simultaneous games by defining a Switching Cost Nash Equilibrium (SNE) notion, and prove that (i) an SNE always exists; (ii) there are sets of SNE, which can never be a set of Nash equilibrium for any standard game; and (iii) SNE with a specific cost structure exactly characterizes the Nash equilibrium of nearby games, in contrast to Radner's (1980) ε-equilibrium. Subsequently, we apply our SNE notion to a product differentiation model, and reach the opposite conclusion of Radner (1980): switching costs for firms may benefit consumers. Finally, we compare our model with others, especially Köszegi and Rabin's (2006) personal equilibrium.engAttribution 4.0 InternationalopenAccesshttps://creativecommons.org/licenses/by-nc/4.0/article17261765000079989450000810.3982/TE4169C72ChoiceD00D01D03Endogenous referenceEpsilon equilibriumSwitching cost Nash equilibriumSwitching costs2-s2.0-85130588418