Abstract
Switching costs play an important role in IT outsourcing price competition. With an infinite repeated game model, the paper examines how participants prices and profits are affected by their costs and switching costs. Incumbents could lock in customers at a price decided by the entrant costs but not its own costs, and earn extra profits summing up to the total switching costs, while entrants use bargain-then-rip-off strategy. Besides customers switching costs, there exist vendors switching costs. Switching costs can be transformed between customers and entrants, and reach equilibrium when the sum is minimum.
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