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State Dependence at Internet Portals

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  • Avi Goldfarb

Abstract

This study offers evidence of the existence of switching costs on the Internet. It uses more flexible methods than previously possible to separate switching costs from serially correlated unobservables at Internet portals. The data contain nearly 1,000 observations per household, allowing for household‐specific regressions that control for all household‐specific heterogeneity. The results show that households exhibit switching costs. The loyalty generated by these costs drives a large fraction of portal visits and generates considerable revenues; however, these revenues are not large enough to justify the losses incurred by Internet portals in the 1990s while building market share. The results also suggest that random coefficients models overestimate true state dependence.

Suggested Citation

  • Avi Goldfarb, 2006. "State Dependence at Internet Portals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 317-352, June.
    • Handle: RePEc:bla:jemstr:v:15:y:2006:i:2:p:317-352
    DOI: 10.1111/j.1530-9134.2006.00102.x
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    References listed on IDEAS

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    Cited by:

    1. Jeremy T. Fox, 2010. "Estimating the Employer Switching Costs and Wage Responses of Forward-Looking Engineers," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 357-412, April.
    2. Bucklin, Randolph E. & Sismeiro, Catarina, 2009. "Click Here for Internet Insight: Advances in Clickstream Data Analysis in Marketing," Journal of Interactive Marketing, Elsevier, vol. 23(1), pages 35-48.
    3. Sirui Li & Jing Su & Ying Liu & Xianwei Shi & Jie Wang & Michael D. Lepech, 2024. "Digital retailing practices for triggering physical retailers’ bounce-back and bounce-forward performance against a great shock: evidence from the COVID-19 pandemic," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-15, December.
    4. Morten Overgaard Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2010. "Incomplete Cost Pass-Through Under Deep Habits," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 317-332, April.
    5. Chris Forman & Pei-yu Chen, 2003. "Network Effects and Switching Costs in the Market for Routers and Switches," Working Papers 03-03, NET Institute, revised Oct 2003.
    6. Ribeiro, Ricardo, 2010. "Consumer demand for variety: intertemporal effects of consumption, product switching and pricing policies," MPRA Paper 25812, University Library of Munich, Germany.
    7. Lukasz Grzybowski & Pedro Pereira, 2007. "Merger Simulation in Mobile Telephony in Portugal," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(3), pages 205-220, November.
    8. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 115-129, March.
    9. Carlos Ocaña Pérez de Tudela & Yolanda Polo & Francisco Javier Sesé, 2009. "Existencia y heterogeneidad de los costes de cambio en la industria de la Telefonía Móvil," Hacienda Pública Española / Review of Public Economics, IEF, vol. 191(4), pages 9-26, December.
    10. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    11. Gábor Kézdi & Gergely Csorba, 2013. "Estimating Consumer Lock-In Effects from Firm-Level Data," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 431-452, September.
    12. Gabor Kezdi & Gergely Csorba, 2011. "Estimating the Lock-in Effects of Switching Costs from Firm-Level Data," CERS-IE WORKING PAPERS 1108, Institute of Economics, Centre for Economic and Regional Studies.
    13. Hong, Seung-Hyun & Rezende, Leonardo, 2012. "Lock-in and unobserved preferences in server operating systems: A case of Linux vs. Windows," Journal of Econometrics, Elsevier, vol. 167(2), pages 494-503.
    14. Avi Goldfarb, 2006. "The medium-term effects of unavailability," Quantitative Marketing and Economics (QME), Springer, vol. 4(2), pages 143-171, June.
    15. Lukasz Grzybowski, 2008. "Estimating Switching Costs in Mobile Telephony in the UK," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 113-132, June.
    16. Schröder, Nadine & Falke, Andreas & Hruschka, Harald & Reutterer, Thomas, 2019. "Analyzing the Browsing Basket: A Latent Interests-Based Segmentation Tool," Journal of Interactive Marketing, Elsevier, vol. 47(C), pages 181-197.
    17. Lukasz Grzybowski & Pedro Pereira, 2011. "Subscription Choices and Switching Costs in Mobile Telephony," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(1), pages 23-42, January.
    18. Catherine Tucker, 2008. "Identifying Formal and Informal Influence in Technology Adoption with Network Externalities," Management Science, INFORMS, vol. 54(12), pages 2024-2038, December.
    19. Jeremy T. Fox, 2009. "Estimating the Employer Switching Costs and Wage Responses of Forward-Looking Engineers," Working Papers 1113, Princeton University, Department of Economics, Industrial Relations Section..
    20. K. Sudhir & Nathan Yang, 2014. "Exploiting the Choice-Consumption Mismatch: A New Approach to Disentangle State Dependence and Heterogeneity," Cowles Foundation Discussion Papers 1941, Cowles Foundation for Research in Economics, Yale University.
    21. Staus, Alexander, 2011. "Which household attitudes determine the store type choice for meat?," Journal of Retailing and Consumer Services, Elsevier, vol. 18(3), pages 224-234.

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