Dynamic Duopoly Competition: Network Effects and Customer Switching
| Autor: | Hung-Cheng Tu, 涂宏成 |
|---|---|
| Rok vydání: | 2010 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 98 This article aims at building a model that reflects major features of the mobile-telephony industry, enabling us to investigate their implications on competition. We analyze a three-period Hotelling model of duopoly competition in a market subject to switching costs as well as network externalities, the latter of which is partially determined by the level of cross-product compatibility. With partial compatibility, consumers have incentives to join the larger network. Competition for market share becomes more intense, leading to lower prices and profits. Therefore firms agree beforehand to make their products completely compatible to lessen the ensuing price competition. On the other hand, the presence of switching costs makes demands more inelastic. When consumers are locked-in to various degrees in the second period, firms make an introductory price offer in the first period to increase future profits. In the second period, they engage in price discrimination based on consumers’ purchase history, poaching the competitor’s past customers by charging them lower prices. When firms can choose between short- and long-term contracts, they are trapped in the prisoner’s dilemma. Although both firms are better off selling short-term contracts, selling long-term contracts is a dominant strategy for the both of them. Nonetheless, the equilibrium maximizes social welfare because inefficient brand switching does not arise. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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