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Product Compatibility Choice in a Market with Technological Progress

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Author Info
Katz, Michael L
Shapiro, Carl

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Abstract

In markets where advantages, e.g., network ex ternalities, are significant, firms' product compatibility choices are an import ant determinant of industry performance. This paper compares the private and soc ial incentives to achieve compatibility in a two-period duopoly model with (poss ible stochastic) technological progress. Earlier analysis using static models fo und that the social incentives to achieve industrywide compatibility always exce ed the private incentives. Here the authors find that private firms may have soc ially excessive compatibility incentives because compatibility serves as a means of relaxing price competition during early stages of industry growth. Copyright 1986 by Royal Economic Society.

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Publisher Info
Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 38 (1986)
Issue (Month): 0 (Suppl. Nov.)
Pages: 146-65
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Handle: RePEc:oup:oxecpp:v:38:y:1986:i:0:p:146-65

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  1. Jeong-Yoo Kim, 2000. "Product Compatibility And Technological Innovation," International Economic Journal, Korean International Economic Association, vol. 14(3), pages 87-100, October. [Downloadable!] (restricted)
  2. Nicolas Jonard & Eric Schenk, 2004. "A note on compatibility and entry in a circular model of product differentiation," Economics Bulletin, Economics Bulletin, vol. 12(1), pages 1-9. [Downloadable!]
  3. Gerlach, Heiko A. & Rønde, Thomas & Stahl, Konrad O., 2002. "Market and Technical Risk in R&D," CEPR Discussion Papers 3450, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Ramon Casadesus-Masanell & Francisco Ruiz-Aliseda, 2008. "Platform Competition, Compatibility, and Social Efficiency," Working Papers 08-32, NET Institute, revised Oct 2008. [Downloadable!]
  5. Nicholas Economides, . "Network Economics with Application to Finance," Financial Networks _004, Economics of Networks. [Downloadable!]
  6. Nicholas Economides, 1995. "The Economics of Networks," Working Papers 94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995. [Downloadable!]
    Other versions:
  7. Snellman, Jussi & Vesala, Jukka, 1999. "Forecasting the Electronification of Payments with Learning Curves: The Case of Finland," Research Discussion Papers 8/1999, Bank of Finland. [Downloadable!]
  8. Mikhail Klimenko & Kamal Saggi, 2004. "Technical Compatibility and the Mode of Foreign Entry under Network Externalities," Working Papers 04-05, NET Institute, revised Oct 2004. [Downloadable!]
  9. Laura Baraldi, 2004. "Esternalita' Di Rete: Una Rassegna," Working Papers 12_2004, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  10. Christopher R. Knittel & Victor Stango, 2004. "Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs," NBER Working Papers 10774, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Christopher R. Knittel & Victor Stango, 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," Working Papers 04-06, NET Institute, revised Oct 2004. [Downloadable!]
    Other versions:
  12. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2008. "Avoiding Market Dominance: Product Compatibility in Markets with Network Effects," Economics Working Paper Archive 537, The Johns Hopkins University,Department of Economics. [Downloadable!]
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