Posted by Social Science Research Network
Obfuscation and Shrouding with Network Effects – The Facebook/WhatsApp Case
By Georg Clemens (Compass Lexecon) & Mutlu Özcan (Chair of Applied Microeconomics)
Abstract: This article analyses switching behavior in messaging service markets. WhatsApp’s decision to start forwarding customer data to Facebook outraged its customer base. Our model explains why, despite this outrage, switching to a rival network that does not collect data failed. In a market with network effects, where consumers either perceive excessive data collection as a dis-utility (“sophisticates”) or not (“naives”), an incumbent network refrains from collecting data until all customers joined. When naives join the incumbent’s network they never switch. The entrant network will thus be too small to compete with the incumbent who ultimately remains dominant, as the Facebook/WhatsApp case shows.
Featured News
T-Mobile Faces Class-Action Lawsuit Over Sprint Merger After Appeal Denied
May 16, 2024 by
CPI
Google Faces Backlash Over Introduction of AI-Generated Summaries in Searches
May 16, 2024 by
CPI
CMA Launches Phase 2 Probe into AlphaTheta’s Acquisition of Serato
May 16, 2024 by
CPI
NFL Executive Escapes Testifying in High-Stakes Trial Over Televised Games
May 16, 2024 by
CPI
EU Consumers Lodge Complaint Against Chinese Retailer Temu Over Content Rules Breach
May 16, 2024 by
CPI
Antitrust Mix by CPI
Antitrust Chronicle® – Ecosystems
May 9, 2024 by
CPI
Mapping Antitrust onto Digital Ecosystems
May 9, 2024 by
CPI
Ecosystems and Competition Law: A Law and Political Economy Approach
May 9, 2024 by
CPI
Ecosystem Theories of Harm: What is Beyond the Buzzword?
May 9, 2024 by
CPI
Open Ecosystems: Benefits, Challenges, and Implications for Antitrust
May 9, 2024 by
CPI