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Why and how should innovative industries with high consumers’ switching costs be re-regulated?

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Author Info
Jackie Krafft (GREDEG - Groupe de recherche en Droit Economie Gestion - Université de Nice Sophia-Antipolis)
Evens Salies (OFCE-DRIC - OFCE)

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Abstract

The existence of costs to consumers to switch between products is central to the process by which firms set prices. Their effect on the introduction and diffusion of innovative technologies is not by now well understood, however. This paper aims to study this effect based on evidence in the broadband Internet industry and to discuss the movement of deregulation implemented since the early 2000s in France, as well as the apparent emerging potential of re-regulation. We argue the presence of a cost to consumers to switch between technologies may impede the expected beneficial outcomes of self-regulation through competition in liberalised innovative industries as it has been implemented so far in several countries. We provide a measure of the cost to switch from ADSL to cable for retail consumers in France which supports the domination of the former technology. These results suggest that retail broadband Internet markets may need some sort of re-regulation, including new principles for competition policy, to avoid the unwanted effects of consumer switching costs.

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Paper provided by HAL in its series Working Papers with number hal-00239289_v1.

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Date of creation: 05 Feb 2008
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Handle: RePEc:hal:wpaper:hal-00239289_v1

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January. [Downloadable!] (restricted)
  2. Heiko A. Gerlach, 2004. "Announcement, Entry, and Preemption When Consumers Have Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 184-202, Spring.
  3. Jackie Krafft & Evens Salies, 2006. "The cost of switching Internet providers in the French broadband industry, or why ADSL has diffused faster than other innovative technologies"," Documents de Travail de l'OFCE 2006-16, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  4. Gans, Joshua S, 2001. "Regulating Private Infrastructure Investment: Optimal Pricing for Access to Essential Facilities," Journal of Regulatory Economics, Springer, vol. 20(2), pages 167-89, September. [Downloadable!] (restricted)
  5. Green, Richard, 2000. "Can Competition Replace Regulation for Small Utility Customers?," CEPR Discussion Papers 2406, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring. [Downloadable!] (restricted)
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  7. Alleman, James & Rappoport, Paul, 2005. "Regulatory Failure: Time for a New Policy Paradigm," MPRA Paper 2517, University Library of Munich, Germany. [Downloadable!]
  8. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring. [Downloadable!] (restricted)
  9. Preston R. Fee & Hugo M. Mialon & Michael A. Williams, 2004. "What Is a Barrier to Entry?," American Economic Review, American Economic Association, vol. 94(2), pages 461-465, May. [Downloadable!]
  10. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier. [Downloadable!] (restricted)
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  11. Beggs, Alan, 1989. "A Note on Switching Costs and Technology Choice," Journal of Industrial Economics, Blackwell Publishing, vol. 37(4), pages 437-40, June. [Downloadable!] (restricted)
  12. Krafft, Jackie & Salies, Evens, 2008. "The diffusion of ADSL and costs of switching Internet providers in the broadband industry: Evidence from the French case," Research Policy, Elsevier, vol. 37(4), pages 706-719, May. [Downloadable!] (restricted)
  13. John J. Wallis & Douglass North, 1986. "Measuring the Transaction Sector in the American Economy, 1870-1970," NBER Chapters, in: Long-Term Factors in American Economic Growth, pages 95-162 National Bureau of Economic Research, Inc. [Downloadable!]
  14. Waterson, Michael, 2003. "The role of consumers in competition and competition policy," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 129-150, February. [Downloadable!] (restricted)
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  15. Shelanski, Howard A., 2005. "Inter-Modal Competition and Telecommunications Policy in the United States," MPRA Paper 2513, University Library of Munich, Germany. [Downloadable!]
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