Switching Costs in Two-sided Markets

W. Lam ()
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W. Lam: University of Liege

No 2015024, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In many markets, there are switching costs and network effects. Yet the literature gen- erally deals with these two concepts separately. This paper bridges the gap by analyzing their interaction effects (or “indirect bargain”) in a dynamic two-sided market. I show that in a symmetric equilibrium, the classic result that the first-period price is U-shape in switching costs does not emerge, but instead switching costs always intensify first-period price competition. Moreover, an increase in switching costs on one side decreases the first- period price on the other side. Thus policies that ignore these effects may underestimate the welfare-enhancing effects of switching costs.

Keywords: switching costs; two-sided markets; network externality; myopia; loyalty (search for similar items in EconPapers)
JEL-codes: D43 L13 L96 (search for similar items in EconPapers)
Date: 2015-03-01
New Economics Papers: this item is included in nep-com, nep-mic and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2015024

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