Assessing the Sources and Mediators of
Switching Costs in the Market for LAN Equipment
by Pei-yu CHEN

Abstract

This research examines the sources and mediators of switching costs arising from constructing local area networks from heterogeneous components. We consider two types of vendor-specific switching costs: one-time switching costs from establishing a new relationship, and switching costs that arise from the need for compatibility with past investments. We also study how new product innovations mediate buyer switching costs. While we show that the introduction of switches may have temporarily reduced switching costs for router buyers investing in switches, the costs of switching vendors remains significant. These results suggests that vendors with broader product lines may have an advantage over those with narrow product lines, and that vendors with large installed base in one market may be able to use this to obtain advantage in related markets.

About the speaker

Pei-yu Chen is currently an Assistant Professor in Information Systems at the Tepper School of Business, Carnegie Mellon University. She received her Ph.D from the Wharton School, University of Pennsylvania in 2002. Her research interests lie at the intersection of technology, economics and marketing, focusing on issues relevant to technology innovation, strategy and pricing. Specific topics include the economics of switching costs and network effects, information goods pricing, software design and licensing, online recommendation systems and software/information security. Her work has been published (or accepted for publication) in Information Systems Research, Management Science, MIS Quarterly and Operations Research. She currently serves on the editorial board of Information Systems Research (ISR) and Production and Operations Management (POM).