Switching Costs and Dynamic Price Competition in Network Industries
AbstractMotivated by policy makers' recent interest in reducing switching costs in various network industries to increase competition, this paper investigates how switching costs affect market outcome in such industries. The results show that the effects of switching costs on market concentration and prices critically depend on two factors: the strength of network effects and the quality of the outside good. For example, switching costs lower prices if network effects are modest and the outside good is attractive, but raise prices otherwise. Therefore, policy makers need to carefully evaluate those two factors in order to make informed decisions.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 09-25.
Length: 40 pages
Date of creation: Oct 2009
Date of revision: Apr 2010
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Web page: http://www.NETinst.org/
Switching Costs; Network Effects; Dynamic Oligopoly; Market Dominance; Pricing;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-27 (All new papers)
- NEP-COM-2009-11-27 (Industrial Competition)
- NEP-IND-2009-11-27 (Industrial Organization)
- NEP-NET-2009-11-27 (Network Economics)
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.:
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