Technological Incompatibility, Endogenous Switching Costs and Lock-in

Author: Mariñoso, Begoña Garcia¹

Source: Journal of Industrial Economics, Volume 49, Number 3, September 2001 , pp. 281-298(18)

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Abstract:

Systems are goods comprising of durables that are sequentially updated with complements. With sequential purchases, if suppliers produce incompatible brands, consumers who upgrade systems with complements of a different brand must replace the durables they own. Thus, the price of these durables is an endogenous switching cost. The paper deals with the concern that firms may use incompatibility to create consumer's switching costs to reduce competition in aftermarkets. However, it shows that, with homogenous durables, and small costs of reaching compatibility, endogenous switching costs increase intertemporal price competition to the extent that producers prefer to have compatible technologies.

Document Type: Original article

DOI: 10.1111/1467-6451.00150

Affiliations: 1: School of Economic and Social Studies, University of East Anglia, Norwich, NR4 7TJ, UK