Compatibility Decisions, Endogenous Installed Home Bases and the Third-Market Competition
AbstractThis Paper analyses the compatibility decisions of two regional monopolistic suppliers of a network-effect good who first build up installed bases in their respective home region and then compete in a third market. We show that with weak network effects, installed home bases always are higher under compatibility and suppliers always opt for compatibility. With strong network effects, home markets are covered, and given a sufficiently high home-market size advantage both the favoured supplier and a regional standardization body maintain incompatibility in order (to enable the supplier) to monopolize the third market via limit pricing. As incompatibility always results in a welfare loss, this is a strong case for a global standardization body.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3816.
Date of creation: Mar 2003
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Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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