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Assigning Default Position for Digital Goods: Competition, Regulation, and Welfare

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  • Yongmin Chen
  • Marius Schwartz

Abstract

We analyze alternative ways to assign the default position for digital goods like search engines. When two competing firms vie for the default through bidding, the higher‐quality firm typically wins but delivers lower utility than the rival due to heightened monetization from exploiting consumer switching costs. The distribution of consumer switching costs plays a crucial role in driving the bidding outcome and welfare results. Paradoxically, increasing via regulation the rival's default share tends to raise profit and harm consumers, at least in the short run. Letting consumers choose the default benefits them in the short run, but harms the weaker firm.

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  • Yongmin Chen & Marius Schwartz, 2025. "Assigning Default Position for Digital Goods: Competition, Regulation, and Welfare," Journal of Industrial Economics, Wiley Blackwell, vol. 73(3), pages 426-445, September.
    • Handle: RePEc:bla:jindec:v:73:y:2025:i:3:p:426-445
    DOI: 10.1111/joie.12417
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