Compatibility Competition In The Presence Of Network Externalities
AbstractA quality level is much often determined ahead of price. In imperfectly competitive markets, quality decisions are known to create the rival¡¯s price undercutting, and thus the equilibrium quality level becomes suboptimal. This paper takes a view that a quality level of a product subject to network externalities is positively related to its degree of compatibility to other brands as well as to the size of its own network. It shows that in the presence of network externalities, contrary to the literature, the suppliers tend to provide an excessive degree of compatibility because compatibility provision relaxes subsequent price competition.
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Bibliographic InfoArticle provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.
Volume (Year): 32 (2007)
Issue (Month): 1 (June)
Network Externalities; Relaxing Price Competition; Inefficiency of Compatibility Provision;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- de Palma, Andre & Leruth, Luc & Regibeau, Pierre, 1999. "Partial compatibility with network externalities and double purchase," Information Economics and Policy, Elsevier, vol. 11(2), pages 209-227, July.
- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
- Ching-to Albert Ma & James F. Burgess Jr., 1992.
"Quality Competition, Welfare, and Regulation,"
0024, Boston University - Industry Studies Programme.
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