Abstract In this paper, we present a dynamic model of switching costs where sticky prices and transportation costs are involved. The source of the switching cost is the difference in information when inferring the unknown quality of two different brands. There are two main results in the paper: the first one is that both firms cannot exploit their captive customers simultaneously, and the second one is that it may be optimal for firms to charge a high price in the first period when consumers are not very riskaverse, instead of attracting consumers by setting a low price
