Why and how should innovative industries with high consumer switching costs be re-regulated ?

The existence of costs to consumers to switch between products is central to the process by which firms set prices. Their effect on the introduction and diffusion of innovative technologies is not by now well understood, however. This paper aims to study this effect based on evidence in the broadband Internet industry. We discuss the movement of deregulation implemented since the early 2000s in France and the potential impact consumer switching costs may have had on it. We argue the existence of a cost to consumers to switch between connexion technologies may impede the expected beneficial outcomes of self-regulation through competition in liberalised innovative industries as it has been implemented so far in several countries. This is illustrated by providing a discussion of the low penetration rate of cable in France possibly due to the high cost to retail consumers to switch their DSL modems which, in returns supports the domination of this latter. These results suggest that retail broadband Internet markets may need some sort of re-regulation, including new principles for competition policy, to avoid the unwanted effects of consumer switching costs.