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E Commerce Essay- "Switching costs are unambiguously bad for consumers: they raise producer profits at the expense of consumer welfare." Discuss.
Switching costs are highly prevalent in the information economy. In this essay I shall define what they are and move on to consider whether they are unambiguously bad for consumers. I shall also assess whether they lead to increased profits for producers as a result of reducing consumer welfare.
|language || ||english
|wordcount || ||2153 (cca 6 pages)
|contextual quality || ||N/A
|language level || ||N/A
|price || ||free
|sources || ||5
Table of contents
Introduction-Definition of Switching Costs and examples
Models of switching costs
Preview of the essay: E Commerce Essay- "Switching costs are unambiguously bad for consumers: they raise producer profits at the expense of consumer welfare." Discuss.
Abstract 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. Firms compete ex ante for this ex post power, using penetration pricing, introductory offers, and price wars. Such ...
... locked in customers is very difficult but small scale entry for new customers is relatively easy. Switching costs tend to make competition, and especially entry, less effective. Public policy should therefore be used in cases where incompatibility is strategically chosen rather than expected. Buyer’s early choices in the presence of switching costs are important and depend on their expectations about firms’ future behaviour. Switching costs have been important in many of the world’s best-known and most significant antitrust cases, including the IBM, the Kodak, and the European Microsoft cases and considering the effects of them on consumer welfare and producer profits are important and regulatory policy should be used if firms are found to be abusing monopoly power.
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The essay provides a good basis for policy directions in the future. More discussion can crystallize public opinion into useful and practicable ides.