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Switching Costs and Dynamic Price Competition in Network Industries

Jiawei Chen

No 09-25, Working Papers from NET Institute

Abstract: Motivated by policy makers' recent interest in reducing switching costs in various network industries to increase competition, this paper investigates how switching costs affect market outcome in such industries. The results show that the effects of switching costs on market concentration and prices critically depend on two factors: the strength of network effects and the quality of the outside good. For example, switching costs lower prices if network effects are modest and the outside good is attractive, but raise prices otherwise. Therefore, policy makers need to carefully evaluate those two factors in order to make informed decisions.

Keywords: Switching Costs; Network Effects; Dynamic Oligopoly; Market Dominance; Pricing (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009-10, Revised 2010-04
New Economics Papers: this item is included in nep-com, nep-ind and nep-net
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