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Endogenous product compatibility choice under Cournot competition with a network externality

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  • Tsuyoshi Toshimitsu

    ()
    (School of Economics, Kwansei Gakuin University)

Abstract

We provide a simple model of endogenous product compatibility choice under Cournot competition with a network externality. Using the model, we consider how the degree of a network externality and product substitutability affects the choice regarding product compatibility. In particular, if the degree of the network externality is larger than that of the product substitutability, there exist multiple equilibria, involving imperfect, partial, and perfect compatibility. However, if another assumption formula regarding a spillover effect, which is a component of network size, is made, i.e., the converter case, there is a unique equilibrium, i.e., perfect compatibility, irrespective of the degree of the network effect versus product substitutability. Furthermore, we show that a perfectly compatible product standard is socially optimal and analyze, therefore, whether a social dilemma arises in the network products market.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp115.pdf
File Function: First version, 2014
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Bibliographic Info

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 115.

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Length: 17 pages
Date of creation: Jan 2014
Date of revision: Jan 2014
Handle: RePEc:kgu:wpaper:115

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Related research

Keywords: product compatibility; network externality; fulfilled expectation; Cournot duopoly; horizontally differentiated product;

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