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Compatibility with Firm Dominance

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Author Info
María Fernanda Viecens

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Abstract

This paper analyzes the effect of firm dominance on the incentives to become compatible and how compatibility decisions affect investment incentives. We will consider compatibility in two dimensions: compatibility of the complementary good and inter-network compatibility. We show that if products are substitutes, compatibility tends to be welfare decreasing with the potential negative consequences of increasing compatibility being more likely when asymmetries are strong. We also find that in many instances the dominant firm’s interests regarding compatibility are in line with those of users, and are opposite to those of the weak firm, which will always demand more compatibility to be enforced. Finally we show that compatibility may harm innovation, particularly for the dominant firm.

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Paper provided by FEDEA in its series Working Papers with number 2009-12.

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Date of creation: Feb 2009
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Handle: RePEc:fda:fdaddt:2009-12

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  2. Crémer, Jacques & Rey, Patrick & Tirole, Jean, 1999. "Connectivity in the Commercial Internet," IDEI Working Papers 87, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000. [Downloadable!]
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  3. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Blackwell Publishing, vol. 40(1), pages 85-103, March. [Downloadable!] (restricted)
  4. Jeffrey Church & Neil Gandal, 2000. "Systems Competition, Vertical Merger, and Foreclosure," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 9(1), pages 25-51, 03. [Downloadable!] (restricted)
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  5. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Blackwell Publishing, vol. 37(4), pages 359-71, June. [Downloadable!] (restricted)
  6. Nicholas Economides, 2006. "Public Policy in Network Industries," Working Papers 06-01, NET Institute, revised Sep 2006. [Downloadable!]
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  7. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Blackwell Publishing, vol. 40(1), pages 37-54, March. [Downloadable!] (restricted)
  8. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December. [Downloadable!] (restricted)
  9. Timothy H. Hannan & Ron Borzekowski, 2007. "Incompatibility and Investment in ATM Networks," Review of Network Economics, Concept Economics, vol. 6(1), pages 1-15, March. [Downloadable!]
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  10. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer, vol. 22(1), pages 27-46, February. [Downloadable!] (restricted)
  11. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer. [Downloadable!] (restricted)
  12. Doganoglu, Toker & Wright, Julian, 2006. "Multihoming and compatibility," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 45-67, January. [Downloadable!] (restricted)
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  13. Clements, Matthew T., 2004. "Direct and indirect network effects: are they equivalent?," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 633-645, May. [Downloadable!] (restricted)
  14. Economides, Nicholas & White, Lawrence J., 1994. "Networks and compatibility: Implications for antitrust," European Economic Review, Elsevier, vol. 38(3-4), pages 651-662, April. [Downloadable!] (restricted)
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