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Compatibility, Intellectual Property, Innovation and Welfare in Durable Goods Markets with Network E§ects

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  • Athanasopoulos, Thanos

Abstract

This article investigates dominant Örmsí approach towards the compatibility of their durable network goods with that of a future, innovative rival in the presence of overlapping generations of forward-looking consumers and the welfare e§ects from dominant Örmsí refusals to support compatibility. I consider sequential, substitutable product innovations, where a rival can build on a dominant Örmís existing knowledge. For moderately innovative future products, the market leader supports compatibility because strategic pricing allows him to extract more of the higher total surplus that emerges when compatibility is present. Incompatible networks increase consumer surplus and there is no market failure when network e§ects are weak.

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  • Athanasopoulos, Thanos, 2015. "Compatibility, Intellectual Property, Innovation and Welfare in Durable Goods Markets with Network E§ects," Economic Research Papers 270241, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:270241
    DOI: 10.22004/ag.econ.270241
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