What is Costs: Sunk/Transaction/Switching/Search?

Costs: Sunk/Transaction/Switching/Search is a mental model used for better thinking and decision-making.

How do you apply Costs: Sunk/Transaction/Switching/Search?

To apply Costs: Sunk/Transaction/Switching/Search, identify situations where this framework is relevant, then use it as a lens to evaluate your options and decisions. The model is most useful when combined with other complementary mental models.

What category does Costs: Sunk/Transaction/Switching/Search fall under?

Costs: Sunk/Transaction/Switching/Search falls under the Economics & Markets category of mental models. Other models in this category can be found on the Economics & Markets hub page.

Why is Costs: Sunk/Transaction/Switching/Search important?

Costs: Sunk/Transaction/Switching/Search is important because it provides a structured way to think about problems that would otherwise be approached with intuition alone. Understanding this model helps you avoid common reasoning errors and make better decisions.

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Mental models
Costs: Sunk/Transaction/Switching/Search

Economics & Markets

Costs: Sunk/Transaction/Switching/Search

Model #0685Category: Economics & MarketsDepth to apply:

4 min read

On this page

Core Idea
How to See It
How to Use It
Founders & Leaders
Connected Models
One Key Quote
Summary & Further Reading

Contents

1. Core Idea
2. How to See It
3. How to Use It
4. Founders & Leaders
5. Connected Models
6. One Key Quote
7. Summary & Further Reading

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·Economics & Markets

Section 1

Core Idea

Four cost types shape decisions and markets. Sunk costs are already spent and irrecoverable — they shouldn't influence future decisions but almost always do. Transaction costs are the friction of making a deal: legal fees, time, paperwork, negotiation. Switching costs are the penalty for changing suppliers, tools, or platforms — retraining, data migration, lost integrations. Search costs are the time and effort to find alternatives. Each type distorts decisions. High switching costs create lock-in and moats. High transaction costs prevent efficient markets. High search costs let inferior products survive. The strategist manipulates these costs — raising them for competitors, lowering them for customers.