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Mix and Match Compatibility with Vertical Product Dimensions

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  • Michael A. Einhorn
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    Abstract

    This article considers a duopoly in which each firm produces two components of a system. If the components are compatible, consumers may "mix and match" the firms' components. The system components and consumer tastes are assumed to differ with regard to vertical characteristics. In the model, one firm may be the quality leader in one or both characteristics. Moreover, a consumer's taste for the quality of one component may be perfectly correlated with, or independent of, his taste for the quality of the other component. It is shown that in all cases the sum of each producer's component prices is (weakly) higher if the components are compatible. The same is true of producer profits.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 23 (1992)
    Issue (Month): 4 (Winter)
    Pages: 535-547

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    Handle: RePEc:rje:randje:v:23:y:1992:i:winter:p:535-547

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    Cited by:
    1. Christopher R. Knittel & Victor Stango, 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," Working Papers, NET Institute 04-06, NET Institute, revised Oct 2004.
    2. Paul Belleflamme & Eric Toulemonde, 2003. "Product differentiation in successive vertical oligopolies," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 36(3), pages 523-545, August.
    3. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series, Federal Reserve Bank of Chicago WP-03-33, Federal Reserve Bank of Chicago.
    4. Matutes, Carmen & Regibeau, Pierre, 1996. "A selective review of the economics of standardization. Entry deterrence, technological progress and international competition," European Journal of Political Economy, Elsevier, Elsevier, vol. 12(2), pages 183-209, September.
    5. Vitor Trindade & Johannes Moenius, 2007. "Networks, Standards and Intellectual Property Rights," Working Papers, Department of Economics, University of Missouri 0705, Department of Economics, University of Missouri.
    6. Stanley M. Besen & Joseph Farrell, 1994. "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(2), pages 117-131, Spring.

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