Classroom Companion: Business

 
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Questions
1. Which lock-in mechanisms tie a mobile network operator to the manufacturer 
of mobile networks?
2. Which lock-in mechanisms tie users to mobile network operators?
3. Are there any lock-in mechanisms binding users to Spotify?
4. Are there any lock-in mechanisms binding advertisers to Facebook?
 
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Answers
1. The most important mechanisms are:
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Spare parts, maintenance, and system updates
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Training
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Economic lifetime
12.7 · Conclusions

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2. This depends on the country.
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SIM-lock may be legal in some countries but illegal in others,
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Number portability may be mandatory in some countries but not in others.
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Service bundling may be legal or illegal.
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The mobile operator may offer loyalty programs of some kind.
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The operator may offer cloud services (computation or storage) that are net 
transferrable.
3. If the user switches to another music provider, the user loses the playing lists 
since they are not transferrable. The user also loses access to Spotify Codes and 
the opportunity to share playlists and other content.
4. The advantages of Facebook are the large number of users and the accurate 
knowledge about the users that the advertisers may use to target the advertise-
ments. This is not a strong lock-in since there are no switching costs. The adver-
tisers have several other advertisement channels. If an advertiser abandons 
Facebook for some reason, this may not cause significant reduction in sales 
because the same customers may be reached via other channels.
References
Amarsy, N. Switching costs: 6 ways to lock customers into your ecosystem. Strategyzer, July 27, 2015.
Honan, M. Apple unveiling iPhone. PC World, January 9, 2007.
Kahneman, D., & Tversky, A. (1992). Advances in prospect theory: Cumulative representation of 
uncertainty. Journal of Risk and Uncertainty, 5(4), 297–323.
Liebowitz, S. J., & Margoliz, S. E. (1994). Network externality: An unknown tragedy. Journal of 
Economic Perspectives, 8(2), 133–150.
Shapiro, C., & Varian, H. R. (1999). Information rules: A strategic guide to the network economy. 
Harvard Business School Press.
Sidak, J. G. (2015). Do free mobile apps harm consumers? San Diego Law Review, 52, 619–694.