scholarly journals Bertrand Competition in Markets with Network Effects and Switching Costs

2011 ◽  
Vol 11 (1) ◽  
Author(s):  
Irina Suleymanova ◽  
Christian Wey
Keyword(s):  
Network Effects ◽  
Switching Costs ◽  
Critical Mass ◽  
Consumer Surplus ◽  
Mass Effect ◽  
Large Network ◽  
Market Outcomes ◽  
Discount Factors ◽  
Market Expansion ◽  
Consumer Switching

Abstract We analyze Bertrand duopoly competition in markets with network effects and consumer switching costs. Depending on the ratio of switching costs to network effects, our model generates four different market patterns: monopolization and market sharing, which can be either preserved or reversed. A critical mass effect where one firm becomes the monopolist for sure only occurs for intermediate values of the ratio, whereas for large switching costs market sharing is the unique equilibrium. For large network effects, both monopoly and market sharing equilibria exist. Our welfare analysis reveals a conflict between maximization of consumer surplus and social welfare when network effects are large. We also analyze firms’ incentives for compatibility and incentives to increase switching costs and examine how market outcomes are affected by market expansion and cost asymmetries. Finally, in a dynamic extension of our model, we show how competition depends on agents’ discount factors.

scholarly journals Who Needs to be Informed? – Empirical Results From a Field Experiment on The Adoption of IOIS Among SMEs

2015 ◽  
Vol 19 ◽  
Author(s):  
Stanislav Kreuzer ◽  
Friedrich Born ◽  
Steffen Bernius
Keyword(s):  
Cluster Analysis ◽  
Field Experiment ◽  
Network Effects ◽  
Critical Mass ◽  
Critical Role ◽  
Organizational Level ◽  
Organizational Adoption ◽  
Business Partners ◽  
Organizational Information ◽  
Adoption Decisions

Inter-organizational information systems (IOIS) play a critical role in today’s organizations and their relationships with business partners. While large organizations already began utilizing IOIS at the outset, small and medium-sized enterprises (SME) have subsequently been reluctant to adopt and use IOIS. As such systems are subject to high network effects, a firm thus has to reach out especially to its SME partners to achieve a critical mass of adopters among them. Prior research agrees that the provision of support in terms of circumstantial information and expertise can influence organizational adoption decisions. However, research in this direction has remained inconclusive. This study conducts a controlled field experiment at the organizational level to investigate the provision of support as a non-coercive persuasion strategy to foster the adoption of IOIS among 203 SME business partners of a large German organization. A cluster analysis is further conducted to identify distinct clusters of IOIS adopters showing significantly different adoption rates that result from informing them as a strategy. The results first offer evidence for the importance of informing SMEs as a viable strategy to foster IOIS adoption among them. Furthermore, the results provide empirical evidence for the presence of particular arrangements of characteristics describing the strategy and structure of analyzed organizations that ultimately interact with the effect of the provision of support as a persuasion strategy.

scholarly journals Content and Access Provision in a Discrete Competition Model

ORiON ◽  
2021 ◽  
Vol 37 (2) ◽  
Author(s):  
Petrus Potgieter ◽  
Bronwyn Howell
Keyword(s):  
Real Life ◽  
Consumer Surplus ◽  
Cost Savings ◽  
Product Category ◽  
Approximate Solutions ◽  
Competition Model ◽  
Differentiated Products ◽  
Single Product ◽  
Market Outcomes ◽  
Product Categories

The non-rival, non-excludable and infinitely expansible characteristics of digital goods with marginal cost of zero strongly favours the use of bundling strategies. Theoretical tractability requires most models in the current literature to make highly stylized assumptions, rarely observed or anticipated in the real-life situations, motivating inquiry. This paper considers a competition model in which: * the firms, consumers and differentiated products are finite in number; * prices are discrete and not continuous; * consumers may purchase multiple items in a single product category where the degree of complementarity or substitutability of the product categories can also vary across consumers; and * where consumer-specific cost savings are obtained when purchasing multiple items from the same firm. Approximate solutions are obtained through numerical simulation. Firms act in concert to maximise the total firm revenue. Our main finding is that the interplay between maximal firm revenue, consumer surplus and prices is very complex and that high firm revenue and high consumer surplus are not antithetic. It suggests also that consumer surplus and market concentration are not necessarily related. Many market outcomes that are observed may be due to chance rather than design as diverse outcomes can accompany situations that are, to the firms, difficult to distinguish.

Mobile Payments at the Retail Point of Sale in the United States: Prospects for Adoption

2010 ◽  
Vol 9 (4) ◽  
Author(s):  
Marianne Crowe ◽  
Marc Rysman ◽  
Joanna Stavins
Keyword(s):  
United States ◽  
Network Effects ◽  
Critical Mass ◽  
The United States ◽  
Cost Ratio ◽  
Supply Side ◽  
Demand Side ◽  
Point Of Sale ◽  
Mobile Payments ◽  
The U.S

Although mobile payments are increasingly used in some countries, they have not been adopted widely in the United States so far, despite their potential to add value for consumers and streamline the payments system. We summarize short-term and long-term benefits from mobile payments, and analyze the economic framework of that market. Both demand-side and supply-side barriers contribute to the lack of adoption of mobile payments. We contrast mobile payments at the retail point of sale in the U.S. with other countries’ experiences and with examples of successful payment innovations in the U.S. Conditions that have facilitated some success in other countries and in other U.S. innovations are not present in the mobile payments market. On the demand side, consumers and merchants are well served by the current card system and face a low expected benefit-cost ratio, at least in the short run. On the supply side, low market concentration and strong competitive forces of banks and mobile carriers make coordination of standards difficult. Furthermore, mobile payments are characterized by a network effects problem: consumers will not demand them until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so. We present some policy recommendations that the Federal Reserve should consider.

Capturing Value in Platform Business Models That Rely on User-Generated Content

2021 ◽  
Author(s):  
Hemang Subramanian ◽  
Sabyasachi Mitra ◽  
Sam Ransbotham
Keyword(s):  
Network Effects ◽  
Business Models ◽  
Switching Costs ◽  
Service Level ◽  
User Generated Content ◽  
Organizational Boundaries ◽  
Considerable Uncertainty ◽  
Current Usage ◽  
Significant Interest ◽  
Using Data

Business models increasingly depend on inputs from outside traditional organizational boundaries. For example, platforms that generate revenue from advertising, subscription, or referral fees often rely on user-generated content (UGC). But there is considerable uncertainty on how UGC creates value—and who benefits from it—because voluntary user contributions cannot be mandated or contracted or its quality assured through service-level agreements. In fact, high valuations of these platform firms have generated significant interest, debate, and even euphoria among investors and entrepreneurs. Network effects underlie these high valuations; the value of participation for an individual user increases exponentially as more users actively participate. Thus, many platform strategies initially focus on generating usage with the expectation of profits later. This premise is fraught with uncertainty because high current usage may not translate into future profits when switching costs are low. We argue that the type of user-generated content affects switching costs for the user and, thus, affects the value a platform can capture. Using data about the valuation, traffic, and other parameters from several sources, empirical results indicate greater value uncertainty in platforms with user-generated content than in platforms based on firm-generated content. Platform firms are unable to capture the entire value from network effects, but firms with interaction content can better capture value from network effects through higher switching costs than firms with user-contributed content. Thus, we clarify how switching costs enable value for the platform from network effects and UGC in the absence of formal contracts.

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