Project title: 

Competition with Switching Costs and Network Effects

 

Project duration:

6 weeks

 

Description:

“Switching costs and network effects 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 efficiency, 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 effects”. 

This project aims to answer the following questions using a continuous time laboratory market experiment with two competing platforms:

1) Do consumers manage to coordinate on the better quality platform? 2) How do platforms change their prices over time to attract more customers? 3) Do switching costs affect the likelihood of coordinating on the better platform?

Some references:

Joseph Farrell, Paul Klemperer, Chapter 31 Coordination and Lock-In: Competition with Switching Costs and Network Effects, In: M. Armstrong and R. Porter, Editor(s), Handbook of Industrial Organization, Elsevier, 2007, Volume 3, Pages 1967-2072, (http://www.sciencedirect.com/science/article/pii/S1573448X06030317)

Hossain, T., & Morgan, J. (2009). The quest for QWERTY. The American Economic Review99(2), 435-440. http://www.jstor.org/stable/25592437

 Hossain, T., Minor, D., & Morgan, J. (2011). Competing matchmakers: an experimental analysis. Management Science57(11), 1913-1925. http://pubsonline.informs.org/doi/abs/10.1287/mnsc.1110.1407

 

Expected outcomes and deliverables:

The research student will have an opportunity to design an economics experiment, formulate hypothesis, and gain experience in programming an economics experiment, writing instructions and possibly conducting a pilot experiment.

 

Suitable for:

Open to applications from Economics and Business students with background in microeconomics, or computer science students with some economics background, 3-4 year students.

Primary Supervisor:

 

Dr. Kenan Kalayci

Further info:

NA