Switching Costs in Two-sided Markets
(2015) , 32 pages
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- 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.
- Affiliations
Citations
Lam, W. M. W. (2015). Switching Costs in Two-sided Markets (CORE Discussion Paper 2015/24). https://hdl.handle.net/2078.5/191295