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Content-distribution strategies in markets with locked-in customers

Author

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  • Joeffrey Drouard

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

We study how the presence of locked-in customers in a downstream market affects the distribution choice of an upstream content provider. Two asymmetric distributors compete in a mature market and the content provider sells its rights using lump-sum fees. A higher number of locked-in customers reduces the need to resort to exclusivity to relax downstream competition. The content provider therefore sells its rights to both distributors when there is a sufficiently-high proportion of locked-in customers. We show that an exclusive affiliation with the smaller rather than the larger distributor facilitates distributors' rent-extraction, in particular for low-quality content. When there are few locked-in customers, the content provider sells low-quality content to the smaller distributor and high-quality content to the larger distributor. Our results suggest that competition authorities should cautiously evaluate the effects of lower switching costs on consumer welfare. By encouraging exclusive distribution, a lower proportion of locked-in customers may reduce consumer welfare. © 2021 Elsevier B.V.

Suggested Citation

  • Joeffrey Drouard, 2022. "Content-distribution strategies in markets with locked-in customers," Post-Print hal-03515409, HAL.
    • Handle: RePEc:hal:journl:hal-03515409
    DOI: 10.1016/j.ijindorg.2021.102794
    Note: View the original document on HAL open archive server: https://hal.science/hal-03515409
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    Cited by:

    1. Chai, Zheng & Feng, Nan & Wang, Harry Jiannan & Feng, Haiyang, 2025. "Optimal exclusivity strategy for digital service on competing platforms with different installed bases," Journal of Retailing, Elsevier, vol. 101(1), pages 120-137.

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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