Hotelling competition with avoidable horizontal product differentiation

We extend the standard model of Hotelling competition to allow consumers, at personal cost, to change the default horizontal characteristic of the product they purchase. The potential to change this characteristic can cause the market equilibrium to switch from one in which each seller serves only its closest consumers to one in which one seller serves all consumers. This potential can also lead to the non-existence of equilibria. Although default-switching costs can reduce a seller's profit by reducing its product's appeal, they can also commit the seller to compete less vigorously for “distant” consumers, and thereby increase equilibrium profit.