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The Perpetual Trouble with Network Products Why IT Firms Choose Partial Compatibility

Author

Listed:
  • Manfred Stadler

    (University of Tübingen)

  • Céline Tobler Trexler

    (University of Tübingen)

  • Maximiliane Unsorg

    (University of Tübingen)

Abstract

Compatibility of network products is an important issue in markets for communication technology as well as hard- and software products. Empirical findings suggest that firms competing in these markets typically choose intermediate degrees of product compatibility. We present a strategic two-stage game of two firms deciding independently or commonly on the degree of product compatibility in the first stage and on prices in the second stage. Indeed, partial compatibility constitutes a subgame perfect Nash equilibrium when coordination costs of standardization are high and the installed bases are low - conditions that typically characterize IT markets.

Suggested Citation

  • Manfred Stadler & Céline Tobler Trexler & Maximiliane Unsorg, 2022. "The Perpetual Trouble with Network Products Why IT Firms Choose Partial Compatibility," Networks and Spatial Economics, Springer, vol. 22(4), pages 903-913, December.
    • Handle: RePEc:kap:netspa:v:22:y:2022:i:4:d:10.1007_s11067-022-09572-x
    DOI: 10.1007/s11067-022-09572-x
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    References listed on IDEAS

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    Cited by:

    1. Domenico Buccella & Luciano Fanti & Luca Gori, 2023. "Strategic product compatibility in network industries," Journal of Economics, Springer, vol. 140(2), pages 141-168, October.

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