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Compatibility Choices, Switching Costs and Data Portability: On the Role of the Non-Negative Pricing Constraint

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  • Jeon, Doh-Shin
  • Menicucci, Domenico
  • Nasr, Nikrooz

Abstract

We study mix-and-match compatibility choices of firms selling complementary products in a dynamic setting. In contrast to what happens in a static setting where symmetric firms choose compatibility (Matutes and Régibeau, 1988), when consumers face significant switching costs and firms can poach them by making behavior-based price discrimination, symmetric firms choose incompatibility to soften future competition. Even if this tends to harm consumers, incompatibility can increase welfare by reducing excessive switching. Data portability, by reducing switching costs, induces the firms to choose compatibility more often but, given a compatibility regime, benefits consumers only if the non-negative pricing constraint binds.

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  • Jeon, Doh-Shin & Menicucci, Domenico & Nasr, Nikrooz, 2016. "Compatibility Choices, Switching Costs and Data Portability: On the Role of the Non-Negative Pricing Constraint," TSE Working Papers 16-691, Toulouse School of Economics (TSE), revised Aug 2020.
    • Handle: RePEc:tse:wpaper:30706
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    References listed on IDEAS

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    1. Doh-Shin Jeon & Domenico Menicucci & Nikrooz Nasr, 2023. "Compatibility Choices, Switching Costs, and Data Portability," American Economic Journal: Microeconomics, American Economic Association, vol. 15(1), pages 30-73, February.

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    More about this item

    Keywords

    Compatibility; Switching Cost; Data Portability;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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