To analyze how firms' policies to reimburse consumer switching costs affect prices, market structure, and welfare, we develop a dynamic duopoly model with network effects, switching costs, and switching cost reimbursement. We find that each firm's reimbursement strategy is nonmonotonic in its installed base. While nonmonotonic, the firm with the greater installed base always reimburses more of the switching cost than its smaller competitor, allowing the firm that obtains an early advantage to dominate the market. Consumers benefit from the reimbursement, while producers only benefit in network industries when network effects are large; otherwise, the reimbursement induces a prisoner's dilemma.
机构:
Northwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
NBER, Cambridge, MA 02138 USANorthwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
Busse, Meghan R.
Knittel, Christopher R.
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机构:
NBER, Cambridge, MA 02138 USA
MIT, Alfred P Sloan Sch Management, Cambridge, MA 02142 USANorthwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
Knittel, Christopher R.
Zettelmeyer, Florian
论文数: 0引用数: 0
h-index: 0
机构:
Northwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
NBER, Cambridge, MA 02138 USANorthwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
机构:
NYU, New York, NY 10003 USA
CEPR, Washington, DC 20009 USA
NYU, Econ & Int Business, Stern Sch Business, New York, NY 10003 USA
IME, Washington, DC 20036 USA
PPRS IESE, Madrid, SpainNYU, New York, NY 10003 USA
机构:
Northwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
NBER, Cambridge, MA 02138 USANorthwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
Busse, Meghan R.
Knittel, Christopher R.
论文数: 0引用数: 0
h-index: 0
机构:
NBER, Cambridge, MA 02138 USA
MIT, Alfred P Sloan Sch Management, Cambridge, MA 02142 USANorthwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
Knittel, Christopher R.
Zettelmeyer, Florian
论文数: 0引用数: 0
h-index: 0
机构:
Northwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
NBER, Cambridge, MA 02138 USANorthwestern Univ, JL Kellogg Grad Sch Management, Evanston, IL 60208 USA
机构:
NYU, New York, NY 10003 USA
CEPR, Washington, DC 20009 USA
NYU, Econ & Int Business, Stern Sch Business, New York, NY 10003 USA
IME, Washington, DC 20036 USA
PPRS IESE, Madrid, SpainNYU, New York, NY 10003 USA