What is Vendor Lock-In?

Luke Arthur

Vendor lock-in is when a customer is locked into using a specific vendor for its products. The customer is locked in because the costs of switching would be too great to facilitate a move. There are several industries subject to vendor lock-in, such as cell phones, automobiles, retail establishments, and computer software.

In the cell phone industry, many customers are locked in because their phones will only work with a SIM card from a specific provider.
In the cell phone industry, many customers are locked in because their phones will only work with a SIM card from a specific provider.

Vendor lock-in is common in the business world today. This situation occurs when a customer has to buy products from a particular vendor to stay competitive. These high costs also sometimes create barriers of entry in a particular industry. This makes it very difficult for new competitors to come into the market and be competitive. When this has happened in the past, it has resulted in antitrust lawsuits to attempt to break up a monopoly.

If a customer were to try to switch to another vendor for its products, it would cost a substantial amount of money. The customer then has more to gain by sticking with its current vendor than by considering other options. In this case, it is better for the customer to stick with its current supplier.

One of the most common examples of vendor lock-in is the gift certificate. Gift certificates force customers to purchase goods from a particular retailer. The holder of a gift certificate could potentially shop with another store, but he or she would have to pay more. Issuing gift certificates is a good way for businesses to create vendor lock-in.

Another example of vendor lock-in is in the cell phone industry. Many cell phones have to be used with a sim card from a specific cell phone provider. The cell phone owner can not switch to another carrier even if he or she wanted to.

The automobile industry is also rampant with vendor lock-in. Many vehicles have parts which cannot be replaced with parts from another company. They are designed in such a way that only the parts from a specific manufacturer will work in a car. This means when a customer wants to have something repaired, the parts must be ordered from the manufacturer.

The computer software industry is also well-known for creating vendor lock-in. Certain Internet browsers include programs which are used in a majority of computers. This creates a situation in which this type of software will be used with many other applications.

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