A Steady State Approach to a Network Externality Market With Switching Costs
AbstractWe study duopoly pricing in the market for mobile phone service, which features network externalities, switching costs, and consumer heterogeneity. We introduce a steady state approach that enables a tractable analysis without endgame effects. The model can generate a variety of testable predictions, of which we focus on the comparative statics with respect to switching costs. Using data on the mobile phone service industries in 52 countries, we use the variation in market structure at the time switching costs were suddenly reduced by the regulatory imposition of mobile number portability (MNP). Firms that grew more rapidly prior to MNP respond to MNP by pricing more aggressively; firms facing large competitors respond less aggressively. Exploration of the model and its implications is an object of ongoing research.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 10-19.
Length: 25 pages
Date of creation: Sep 2010
Date of revision:
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Web page: http://www.NETinst.org/
Oligopoly; network externalities; switching costs; mobile number portability.;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-09 (All new papers)
- NEP-COM-2010-10-09 (Industrial Competition)
- NEP-IND-2010-10-09 (Industrial Organization)
- NEP-NET-2010-10-09 (Network Economics)
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