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Languagenetworks - 0.1 Switching Costs Networks and...

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0.1 Switching Costs, Networks, and Language Discuss David’s Qwerty paper and Liebowitz’s criticism of it. What is David’s point? What is Liebowitz’s point? What do you make of this? Network externalities can in principal trap you into technically inferior tech- nologies. Didn’t happen in our experiment. Learning costs and lock-in were important. Examples, operating systems, software, printers and printer cartridges, ra- zors and blades, internet suppliers, bank loans, brokerage firms, online sellers Amazon. Varian’s model of switching in simplest form. Competitive model with lock in, two period version, firms not able to commit to period two prices. Smart buyers, smart sellers. s = switching cost c =marginal cost of producing. Every consumer thinks the service is worth v per period. Assume v > c and v < c + s . Price will be v in period 2, because you are locked in. Nobody will sell to you at less than c and cost would be c + s . But then value of a customer is v - c . Competition forces a discount of v - c in period 1. Therefore period 1 equilibrium price will
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