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Content-distribution strategies in markets with locked-in customers

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  • Drouard, Joeffrey

Abstract

We study how the presence of locked-in customers in a downstream market affects the distribution choice of an upstream content provider. Two asymmetric distributors compete in a mature market and the content provider sells its rights using lump-sum fees. A higher number of locked-in customers reduces the need to resort to exclusivity to relax downstream competition. The content provider therefore sells its rights to both distributors when there is a sufficiently-high proportion of locked-in customers. We show that an exclusive affiliation with the smaller rather than the larger distributor facilitates distributors’ rent-extraction, in particular for low-quality content. When there are few locked-in customers, the content provider sells low-quality content to the smaller distributor and high-quality content to the larger distributor. Our results suggest that competition authorities should cautiously evaluate the effects of lower switching costs on consumer welfare. By encouraging exclusive distribution, a lower proportion of locked-in customers may reduce consumer welfare.

Suggested Citation

  • Drouard, Joeffrey, 2022. "Content-distribution strategies in markets with locked-in customers," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:indorg:v:80:y:2022:i:c:s0167718721000862
    DOI: 10.1016/j.ijindorg.2021.102794
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    More about this item

    Keywords

    Distribution of content; Exclusivity; Switching costs; Locked-in customers; Customer base;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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