Content-distribution strategies in markets with locked-in customers

Joeffrey Drouard

International Journal of Industrial Organization, 2022, vol. 80, issue C

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.

Keywords: Distribution of content; Exclusivity; Switching costs; Locked-in customers; Customer base (search for similar items in EconPapers)
JEL-codes: D43 L11 L14 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:80:y:2022:i:c:s0167718721000862

DOI: 10.1016/j.ijindorg.2021.102794

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