1 research outputs found
A Steady State Approach to a Network Externality Market With Switching Costs
We study duopoly pricing in the market for mobile phone service, which
features network externalities, switching costs, and consumer
heterogeneity. We introduce a steady state approach that enables a
tractable analysis without endgame effects. The model can generate a
variety of testable predictions, of which we focus on the comparative
statics with respect to switching costs. Using data on the mobile phone
service industries in 52 countries, we use the variation in market
structure at the time switching costs were suddenly reduced by the
regulatory imposition of mobile number portability (MNP). Firms that
grew more rapidly prior to MNP respond to MNP by pricing more
aggressively; firms facing large competitors respond less aggressively.
Exploration of the model and its implications is an object of ongoing research