A Steady State Approach to a Network Externality Market with Switching Costs
David A. Miller
University of California, San Diego - Department of Economics
Xiahua (Anny) Wei
University of California, San Diego (UCSD) - Department of Economics
Timothy R. Keller
University of California, San Diego (UCSD)
September 30, 2010
NET Institute Working Paper No. 10-19
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.
Number of Pages in PDF File: 26
Keywords: Oligopoly, Network Externalities, Switching Costs, Mobile Number Portability
JEL Classification: L13working papers series
Date posted: October 20, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.438 seconds