Classroom Companion: Business

12.6 · Lock-In and Market Regulations

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operators to use the incumbent’s connection. This is called local-loop unbun-
dling (LLU). LLU became mandatory in the USA in 1996 (Telecommunica-
tions Act of 1996) and the European Union in 2001.
5
It is difficult to regulate markets with strong network effects. The reason is that 
the network effects tend to create de facto monopolies. If antitrust legislation is 
used to divide such monopolies into two or more independent competitors, the 
same network effects are again likely to turn this market into a new monopoly 
with only one of these companies surviving the competition. For the same 
reasons, it is also fruitless to economically or regulatory stimulate a new 
. Table 12.1 Lock-in and regulations in the digital economy. (Authors’ compilation)
Lock-in 
mechanism
Regulation
Switching barriers if not 
regulated
Regulatory actions
Spare parts 
and 
mainte-
nance
Impossible
Expensive for the 
customer
Training
Impossible
Expensive for the 
customer
Incompat-
ibility
Some 
regulations but 
mostly 
unregulated
Expensive for the 
customer unless in 
regulated cases
Interoperability is required by 
law in certain cases (telecom-
munications networks) and 
between ASPs and ISPs
Loss of 
information
Impossible
May be expensive for 
customer; in many cases 
psychological barriers
Economical 
lifetime
Impossible
Expensive for customer
Contracts
Possible
May be expensive for 
customer
May be regulated by law 
(SIM-lock and number 
portability)
Loyalty 
programs
Possible
Psychological barrier
Some loyalty programs may be 
illegal by law
Bundling
Possible
Psychological barrier
May be illegal by law in some 
cases, e.g., bundling of ASP 
services provided by market 
dominating ISPs
Search 
algorithms
Possible
Convenient for the 
customer
Not regulated
Product 
tying
Possible
May be impossible to 
escape in many cases
Generally forbidden but there 
are exceptions