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Platform Competition and Endogenous Switching Costs

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  • Mark J. Tremblay

    (Miami University)

Abstract

This paper considers intra-platform technologies that allow a consumer’s content and preferences to carryover across platform generations. In many platform industries, content consumed on a platform’s previous generation can be used on the platform’s new generation. Naturally, a consumer with more content incurs a greater cost to switch platforms. Instead of discounting the first-period consumer price (the standard result), I find that a platform subsidizes content procurement. This still provides a bargain to first-period consumers in the form of more content, but it also generates a more extensive second-period markup to consumers. To further highlight the usefulness of the model, data from the video game market is used to provide additional insights on consumer primitives and to explain how Sony generated endogenous switching costs which allowed them to dominate the video game market in the early 2000s.

Suggested Citation

  • Mark J. Tremblay, 2019. "Platform Competition and Endogenous Switching Costs," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 537-559, December.
  • Handle: RePEc:kap:jincot:v:19:y:2019:i:4:d:10.1007_s10842-019-00301-8
    DOI: 10.1007/s10842-019-00301-8
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    Cited by:

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    2. Dohoon Kim, 2018. "Equilibrium Analysis for Platform Developers in Two-Sided Market with Backward Compatibility," Games, MDPI, Open Access Journal, vol. 9(4), pages 1-24, October.

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    More about this item

    Keywords

    Two-sided markets; Network externalities; Incumbency; Entry; Consumer lock-in;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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