IDEAS home Printed from https://ideas.repec.org/p/hal/spmain/hal-00239289.html
   My bibliography  Save this paper

Why and how should innovative industries with high consumers' switching costs be re-regulated?

Author

Listed:
  • Jackie Krafft

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique)

  • Evens Salies

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

The existence of costs to consumers to switch between products is central to the process by which firms set prices. Their effect on the introduction and diffusion of innovative technologies is not by now well understood, however. This paper aims to study this effect based on evidence in the broadband Internet industry and to discuss the movement of deregulation implemented since the early 2000s in France, as well as the apparent emerging potential of re-regulation. We argue the presence of a cost to consumers to switch between technologies may impede the expected beneficial outcomes of self-regulation through competition in liberalised innovative industries as it has been implemented so far in several countries. We provide a measure of the cost to switch from ADSL to cable for retail consumers in France which supports the domination of the former technology. These results suggest that retail broadband Internet markets may need some sort of re-regulation, including new principles for competition policy, to avoid the unwanted effects of consumer switching costs.

Suggested Citation

  • Jackie Krafft & Evens Salies, 2009. "Why and how should innovative industries with high consumers' switching costs be re-regulated?," SciencePo Working papers Main hal-00239289, HAL.
    • Handle: RePEc:hal:spmain:hal-00239289
    Note: View the original document on HAL open archive server: https://hal.science/hal-00239289
    as

    Download full text from publisher

    File URL: https://hal.science/hal-00239289/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Papacharissi, Zizi & Zaks, Anna, 2006. "Is broadband the future? An analysis of broadband technology potential and diffusion," Telecommunications Policy, Elsevier, vol. 30(1), pages 64-75, February.
    2. Oliver E. Williamson, 2005. "The Economics of Governance," American Economic Review, American Economic Association, vol. 95(2), pages 1-18, May.
    3. Winston Harrington & Richard D. Morgenstern & Peter Nelson, 2000. "On the accuracy of regulatory cost estimates," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(2), pages 297-322.
    4. Robert W. Hahn, 1998. "Policy Watch: Government Analysis of the Benefits and Costs of Regulation," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 201-210, Fall.
    5. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring.
    6. Green, Richard, 2000. "Can Competition Replace Regulation for Small Utility Customers?," CEPR Discussion Papers 2406, C.E.P.R. Discussion Papers.
    7. Krafft, Jackie & Salies, Evens, 2008. "The diffusion of ADSL and costs of switching Internet providers in the broadband industry: Evidence from the French case," Research Policy, Elsevier, vol. 37(4), pages 706-719, May.
    8. Shelanski, Howard A., 2005. "Inter-Modal Competition and Telecommunications Policy in the United States," MPRA Paper 2513, University Library of Munich, Germany.
    9. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January.
    10. von Weizsacker, C Christian, 1984. "The Costs of Substitution," Econometrica, Econometric Society, vol. 52(5), pages 1085-1116, September.
    11. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 31, pages 1967-2072, Elsevier.
    12. Ruth N. Bolton, 1998. "A Dynamic Model of the Duration of the Customer's Relationship with a Continuous Service Provider: The Role of Satisfaction," Marketing Science, INFORMS, vol. 17(1), pages 45-65.
    13. John J. Wallis & Douglass North, 1986. "Measuring the Transaction Sector in the American Economy, 1870-1970," NBER Chapters, in: Long-Term Factors in American Economic Growth, pages 95-162, National Bureau of Economic Research, Inc.
    14. Alleman, James & Rappoport, Paul, 2005. "Regulatory Failure: Time for a New Policy Paradigm," MPRA Paper 2517, University Library of Munich, Germany.
    15. Waterson, Michael, 2003. "Consumers and Competition," Economic Research Papers 269563, University of Warwick - Department of Economics.
    16. repec:hal:spmain:info:hdl:2441/962 is not listed on IDEAS
    17. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    18. Beggs, Alan, 1989. "A Note on Switching Costs and Technology Choice," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 437-440, June.
    19. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 515-539.
    20. Waterson, Michael, 2003. "The role of consumers in competition and competition policy," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 129-150, February.
    21. Jackie Krafft & Evens Salies, 2006. "The cost of switching Internet providers in the French broadband industry, or why ADSL has diffused faster than other innovative technologies," SciencePo Working papers Main hal-00972799, HAL.
    22. Heiko A. Gerlach, 2004. "Announcement, Entry, and Preemption When Consumers Have Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 184-202, Spring.
    23. Gans, Joshua S, 2001. "Regulating Private Infrastructure Investment: Optimal Pricing for Access to Essential Facilities," Journal of Regulatory Economics, Springer, vol. 20(2), pages 167-189, September.
    24. Preston R. Fee & Hugo M. Mialon & Michael A. Williams, 2004. "What Is a Barrier to Entry?," American Economic Review, American Economic Association, vol. 94(2), pages 461-465, May.
    25. repec:hal:wpspec:info:hdl:2441/962 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hc03jc5h8 is not listed on IDEAS
    2. Evens Salies, 2012. "Product Innovation when Consumers have Switching Costs," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 31, Edward Elgar Publishing.
    3. repec:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h56210pa6 is not listed on IDEAS
    4. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09hc03jc5h8 is not listed on IDEAS
    5. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h56210pa6 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:spo:wpmain:info:hdl:2441/6143 is not listed on IDEAS
    2. repec:hal:spmain:info:hdl:2441/6143 is not listed on IDEAS
    3. repec:spo:wpecon:info:hdl:2441/6143 is not listed on IDEAS
    4. repec:hal:wpspec:info:hdl:2441/6143 is not listed on IDEAS
    5. Evens Salies, 2012. "Product Innovation when Consumers have Switching Costs," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 31, Edward Elgar Publishing.
    6. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09hc03jc5h8 is not listed on IDEAS
    7. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hc03jc5h8 is not listed on IDEAS
    8. repec:hal:wpspec:info:hdl:2441/5l6uh8ogmqildh09h56210pa6 is not listed on IDEAS
    9. Evens Salies, 2011. "Product innovation when consumers have switching costs," Working Papers hal-01069477, HAL.
    10. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h56210pa6 is not listed on IDEAS
    11. repec:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h56210pa6 is not listed on IDEAS
    12. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h56210pa6 is not listed on IDEAS
    13. Jackie Krafft & Evens Salies, 2008. "The cost of switching Internet providers in the broadband industry, or why ADSL has diffused faster than other innovative technologies: Evidence from the French case," SciencePo Working papers Main hal-00203512, HAL.
    14. Krafft, Jackie & Salies, Evens, 2008. "The diffusion of ADSL and costs of switching Internet providers in the broadband industry: Evidence from the French case," Research Policy, Elsevier, vol. 37(4), pages 706-719, May.
    15. Miguel Villas-Boas, J., 2015. "A short survey on switching costs and dynamic competition," International Journal of Research in Marketing, Elsevier, vol. 32(2), pages 219-222.
    16. Yoonhee Tina Chang & Catherine Waddams Price, 2008. "Gain or Pain: Does Consumer Activity Reflect Utility Maximisation?," Working Papers 08-15, Centre for Competition Policy, University of East Anglia.
    17. Wei Yin & Kent Matthews, 2016. "The determinants and profitability of switching costs in Chinese banking," Applied Economics, Taylor & Francis Journals, vol. 48(43), pages 4156-4166, September.
    18. Guy Arie & Paul E. Grieco, 2014. "Who pays for switching costs?," Quantitative Marketing and Economics (QME), Springer, vol. 12(4), pages 379-419, December.
    19. Mark J. Tremblay, 2019. "Platform Competition and Endogenous Switching Costs," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 537-559, December.
    20. Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
    21. Jorge Fernández‐Ruiz, 2019. "A Mixed Duopoly With Switching Costs," The Japanese Economic Review, Japanese Economic Association, vol. 70(2), pages 235-257, June.
    22. Jackie Krafft & Evens Salies, 2006. "The cost of switching Internet providers in the French broadband industry, or why ADSL has diffused faster than other innovative technologies," SciencePo Working papers Main hal-00972799, HAL.
    23. Salies, Evens, 2005. "A Measure of Switching Costs in the GB Electricity Retail Market," MPRA Paper 28255, University Library of Munich, Germany, revised Apr 2007.
    24. Ciotti, Fabrizio & Hornuf, Lars & Stenzhorn, Eliza, 2021. "Lock-In Effects in Online Labor Markets," LIDAM Discussion Papers CORE 2021014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    25. Andrew Rhodes, 2014. "Re-examining the effects of switching costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 161-194, September.
    26. Thomas, Catherine & Chen, Zhuoqiong (Charlie) & Stanton, Christopher T., 2020. "Information Spillovers in Experience Goods Competition," CEPR Discussion Papers 15255, C.E.P.R. Discussion Papers.
    27. Mengze Shi, 2013. "A theoretical analysis of endogenous and exogenous switching costs," Quantitative Marketing and Economics (QME), Springer, vol. 11(2), pages 205-230, June.
    28. Wilson, Chris M., 2012. "Market frictions: A unified model of search costs and switching costs," European Economic Review, Elsevier, vol. 56(6), pages 1070-1086.
    29. repec:hal:wpspec:info:hdl:2441/962 is not listed on IDEAS
    30. Fredrik Carlsson & Åsa Lofgren, 2006. "Airline choice, switching costs and frequent flyer programmes," Applied Economics, Taylor & Francis Journals, vol. 38(13), pages 1469-1475.
    31. Miah, Mohammad Dulal & Kabir, Md. Nurul & Safiullah, Md, 2020. "Switching costs in Islamic banking: The impact on market power and financial stability," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:spmain:hal-00239289. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Contact - Sciences Po Departement of Economics (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.