Analysis Of Lock-in Strategies Taken By The 3G Telecom Operators In China

Network economy is a newly concerned economic model by economists. Its feature is that the value of products is determined by market size, and market size is the result of consumers' choices. Tomorrow's choices of consumers will be restricted by their current selection state. Competition content and form of network economy cannot be explained by traditional economy. Telecommunication industry is an industry with strong network effects. As technology progress and change of consumer demands, more and more surrounding industries are integrated into telecommunication industry. As the third generation mobile communication technology (3G) becomes more and more mature, in order to gain more large scale of users, the three telecom operators - China mobile, China Unicom, China Telecom, are trying every means to snatch customer base in the market.This paper uses a two-stage Hotelling Model, and divides transaction behaviors between manufacturers into two stages, in order to focus on the research how conversion barriers that built together by network externalities, switching costs and product compatibility affect the lock-in strategy of manufacturers in a product markets with network externality, and how these three factors guide manufacturers economic behavior in the market. Through the construction and analysis of the model obtained: in the duopoly market, for two network products with the compatibility coefficient of k, switching cost of s, network externality strength ofα,βrespectively, at the beginning of entering the market, manufacturers should carefully consider various competition strategies that will be faced in the two stages, including increase of network externalities and switching costs, and reduce of compatibility coefficient. And the two stages of competition between the various strategies are mutually conditioned. Also the paper will adjust the existing models according to actual conditions and deductive the relevant conclusion.Finally, the paper will discuss the various detailed programs that every telecom operator has carried out, and suggests how to successfully lock in and develop customers through high conversion barriers from technical lock-in strategies and emotional lock-in strategies. Also the paper discusses how governmental policies will affect market and consumer welfare. And then the paper fatherly tests and verifies the various motivations of various lock-in strategies taken by telecom operators with case of the battle between China Unicom and China Mobile in Apple iPhone mobile phone market. At last, the paper gives telecom operators and government some suggestions beneficial to the development of 3G industry.