A note on compatibility and entry in a circular model of product differentiation
AbstractConsider an industry in which network goods are supplied by two horizontally differentiated firms facing the threat of a potential entrant. Firms' dilemma is between occupying the product space by selling very differentiated (incompatible) goods, and supplying compatible goods that offer higher utilities hence can be charged a higher price to consumers but are also closer substitutes. The compatibility-entry-price game is solved backward when firms and consumers are located on a circular product space. It turns out that strong externalities can favour entry, as merging the networks and accommodating entry can be preferred by the incumbents.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 12 (2004)
Issue (Month): 1 ()
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Find related papers by JEL classification:
- L0 - Industrial Organization - - General
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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"Vertical differentiation, network externalities and compatibility decisions : an alternative approach,"
Cahiers de la Maison des Sciences Economiques
b06013, Université Panthéon-Sorbonne (Paris 1).
- Hend Ghazzai & Rim Lahmandi-Ayed, 2006. "Vertical differentiation, network externalities and compatibility decisions : an alternative approach," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00111166, HAL.
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