Network Effects, Switching Costs, and Competition in Unified Communications

November 5, 2012

Unified Communications (UC) integrates a variety of communications methods, including voice, data, and video into a single user interface generally available across multiple communications devices. Unified Communications have the potential to increase productivity, but the lack of interoperability is an important impediment to widespread adoption. In this paper, Michael Katz and Bryan Keating demonstrate that the UC industry is characterized by certain market conditions that can give rise to concerns that vendors will strategically oppose interoperability and give rise to the threat of tipping and harm to competition. These conditions include: strong network effects, significant switching costs, customers who are likely to use only one set of UC products, and vendors that have asymmetrical positions with respect to characteristics that affect their competitive positions when applications are not interoperable (e.g., certain firms have large installed bases and important complementary products). Katz and Keating explore the policy implications and reach the following conclusions: (i) standards should be flexible and should allow competitors to differentiate themselves; (ii) antitrust enforcement on a case-by-case basis is the right starting point to examine specific potential problems; and (iii) a regulatory backstop may be necessary in specific cases where economy-wide antitrust policy is ineffective.

Read the full paper: Dated 11-5-12

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