Coordination and Lock-in : Competition with Switching Costs and Network Effects

  title={Coordination and Lock-in : Competition with Switching Costs and Network Effects},
  author={Joseph Farrell},
Switching costs and network e ects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in e ciency, and gives vendors lucrative ex post market power|over the same buyer in the case of switching costs (or brand loyalty), or over others with network e ects. Firms compete ex ante for this ex post power, using penetration pricing… CONTINUE READING
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