Advances in New Institutional Analysis series
Edited by Claude Ménard and Michel Ghertman
Chapter 14: Why and How Should New Industries with High Consumer Switching Costs be Regulated? The Case of Broadband Internet in France
14. Why and how should new industries with high consumer switching costs be regulated?: The case of broadband Internet in France Jackie Krafft and Evens Salies INTRODUCTION This chapter deals with the recent debate on the impact of deregulation in the info-communications industry, including new arguments promoting re-regulation based on institutional and other approaches (Richards, Foster and Kiedrowski, 2006; Alleman, 2005). While most contributions on the subject focus on wholesale markets, retail price control and access prices, we explore the question of regulation/deregulation by addressing the role played by the costs levied on consumers for switching between Internet service providers (hereafter ISP) and their Internet connection technologies (see Farrell and Klemperer, 2007, for a most comprehensive survey of consumer switching costs). Empirical and econometric evidence on the retail markets of several network industries that have been opened up to competition and where buyers and sellers are bound by contracts, suggests that there are also significant consumer switching costs in these markets. In some new info-communications industries, such as broadband Internet, these costs are likely to be especially high when firms practise subscription pricing, develop their own networks and supply specific assets such as modems. This raises the question of the current processes of regulation and competition in Europe as the most profitable means of market functioning, since these processes largely ignore the issue of consumer switching costs. As we shall see, our definition of switching costs for a customer wanting to change ISP takes account of the existence of relationshipspecific...
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