Network Effects and Switching Costs in the Market for Routers and Switches

NET Institute Working Paper No. 03-3

37 Pages Posted: 14 Nov 2004

See all articles by Chris Forman

Chris Forman

Cornell University - Dyson School of Applied Economics and Management; Georgia Institute of Technology - Scheller College of Business

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems

Date Written: September 2003

Abstract

This research examines the impact of switching costs on vendor choice in the market for routers and switches. We show that despite the use of open standards which attempt to enhance interoperabilities for equipments from different vendors, vendors in this market are able to maintain high switching costs. Because routers and switches are networked goods, switching costs may arise from prior investments made at the same establishment and/or at other establishments within the same firm. We study how the introduction of switches into the LAN market affected vendor choice in routers. In particular, we provide evidence of significant cross-product switching costs and sizeable shopping costs when buyers purchase routers and switches simultaneously. However, we also show that the introduction of switches may have temporarily reduced switching costs for router buyers investing in switches.

Suggested Citation

Forman, Chris and Chen, Pei-Yu, Network Effects and Switching Costs in the Market for Routers and Switches (September 2003). NET Institute Working Paper No. 03-3. Available at SSRN: https://ssrn.com/abstract=618021 or http://dx.doi.org/10.2139/ssrn.618021

Chris Forman (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems ( email )

Tempe, AZ
United States

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