Platform Competition and Endogenous Switching Costs

This paper considers intra-platform technologies that allow a consumer’s content and preferences to carryover across platform generations. In many platform industries, content consumed on a platform’s previous generation can be used on the platform’s new generation. Naturally, a consumer with more c...

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Bibliographic Details
Published in:Journal of industry, competition and trade competition and trade, 2019-12, Vol.19 (4), p.537-559
Main Author: Tremblay, Mark J.
Format: Article
Language:English
Subjects:
Computer & video games
Consumers
Discounting
Economic Policy
Economics
Economics and Finance
Endogenous
European Integration
Industrial Organization
International Economics
Microeconomics
R & D/Technology Policy
Usefulness
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Summary:This paper considers intra-platform technologies that allow a consumer’s content and preferences to carryover across platform generations. In many platform industries, content consumed on a platform’s previous generation can be used on the platform’s new generation. Naturally, a consumer with more content incurs a greater cost to switch platforms. Instead of discounting the first-period consumer price (the standard result), I find that a platform subsidizes content procurement. This still provides a bargain to first-period consumers in the form of more content, but it also generates a more extensive second-period markup to consumers. To further highlight the usefulness of the model, data from the video game market is used to provide additional insights on consumer primitives and to explain how Sony generated endogenous switching costs which allowed them to dominate the video game market in the early 2000s.
ISSN:1566-1679
1573-7012
DOI:10.1007/s10842-019-00301-8