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

Marius Schwartz and Yongmin Chen

Working Papers from Georgetown University, Department of Economics

Abstract: We analyze alternative ways to assign the default position for competing digital goods such as search engines. When two firms vie for the position through bidding, the higher-quality firm typically wins but delivers lower utility than the rival due to heightened monetization (e.g., unwanted ads), exploiting consumers' switching costs. Paradoxically, increasing via regulation the rival's default share tends to raise profit and harm consumers, at least in the short run. Delegating the default choice to consumers benefits them but harms the weaker firm. Our findings highlight the subtle welfare tradeoffs in default assignment, an important and controversial policy issue.

Keywords: Default Position; Digital Goods; Competition; Regulation (search for similar items in EconPapers)
JEL-codes: L1 L4 (search for similar items in EconPapers)
Pages: 46
Date: 2023-09-27
New Economics Papers: this item is included in nep-com, nep-mic, nep-reg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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