Coordination and Lock-In: Competition with Switching Costs and Network E ects May 2006 the latest version of this paper, and related material, will be at www.paulklemperer.org Joseph Farrell University of California, Berkeley, 549 Evans Hall # 3880 Berkeley, CA 94720-3880, USA email:
[email protected] and Paul Klemperer Nueld College, Oxford University, Oxford OX1 1NF, England Int Tel: +44 1865 278588 Int Fax: +44 1865 278557 email:
[email protected] First draft: 1997 This draft: 2006 PRELIMINARY DRAFT: PLEASE SEND COMMENTS KEYWORDS: switching costs, network e ects, lock-in, network externalities, co-ordination, indirect network e ects JEL CLASSIFICATIONS: L130 market structure, rm strategy and market performance: oligopoly and other imperfect markets; monopolistic competition; contestable markets L150 information and product quality; standardization and compatibility L120 market structure, rm strategy and market performance: monopoly L140 transactional relationships: contracts and reputation: networks D430 market structure and pricing: oligopoly and other forms of market im- perfection D420 market structure and pricing: monopoly. ACKNOWLEDGMENTS: We're grateful to many friends and colleagues for numerous helpful suggestions and comments over several substantial rewrites of this paper since our rst 1997 draft. Special thanks are due to Alan Beggs, Simon Board, Tim Bresnahan, Yongmin Chen, Matthew Clements, David Gill, Jonathan Good, Moshe Kim, Catherine McNeill, Markus Mobius, Meg Meyer, Tore Nilssen, Hiroshi Ohashi, Pierre Regibeau, Garth Saloner, Marius Schwartz, Oz Shy, Re- becca Stone, John Vickers, Matthew White, Miguel Villas-Boas, and the Editors of this Volume. Joe Farrell was chief economist at the Federal Communications Commission 1996-7 and at the Antitrust Division of the Department of Justice 2000-1, and Paul Klemperer served as a Member of the UK Competition Commis- sion 2001-5, but all the views expressed are personal ones.