Usage Lock-In and Platform Competition
39 Pages Posted: 15 Jun 2021 Last revised: 22 Jan 2022
Date Written: January 21, 22
This article studies platform competition where consumers must choose a single platform to complete a bundle of transactions with sellers rather than for each transaction, which is called as usage lock-in. Usage lock-in induces excessive platform competition by allowing platforms to extract the sellers’ transaction surplus and increasing the platforms' incentive to attract usage. Consequently, usage lock-in benefits consumers, hurts sellers, and often benefits platforms. In the long run, usage lock-in may even hurt consumers by discouraging seller investments. These results provide a rationale for policy intervention in response to platform strategies that benefit consumers at the expense of sellers.
Keywords: Two-sided markets, multihoming, competition-in-utility, excessive competition
JEL Classification: L13, L81
Suggested Citation: Suggested Citation