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Network Compatibility: Joint Adoption Versus Individual Decisions

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  • David Encaoua
  • Philippe Michel
  • Michel Moreaux

Abstract

In this paper we consider the problem of compatibility between networks when the consumers of a network service value the capacity of the network itself rather than the number of users. Compatibility decisions are modelled as the outcome of a three stages game where strategies include compatibility, capacity levels and prices. Two main questions are studied. First, will the result of this game differ from the outcome of a joint adoption procedure, where compatibility is adopted if and only if all the firms in the industry agree? Second, what are the effects of compatibility adoption on the network sizes? These questions are examined in a duopolistic framework where competition occurs between vertically differentiated products whose perceived qualities depend on their respective producers and on the competitor's network capacity when compatibility prevails.

Suggested Citation

  • David Encaoua & Philippe Michel & Michel Moreaux, 1992. "Network Compatibility: Joint Adoption Versus Individual Decisions," Annals of Economics and Statistics, GENES, issue 25-26, pages 51-69.
    • Handle: RePEc:adr:anecst:y:1992:i:25-26:p:51-69
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    File URL: http://www.jstor.org/stable/20075856
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    Cited by:

    1. Anne Perrot, 1995. "Ouverture à la concurrence dans les réseaux : l'approche stratégique de l'économie des réseaux," Économie et Prévision, Programme National Persée, vol. 119(3), pages 59-71.
    2. Encaoua, David & Moreaux, Michel & Perrot, Anne, 1996. "Compatibility and competition in airlines demand side network effects," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 701-726, October.
    3. David Encaoua, 1996. "Ouverture à la concurrence des activités en réseau. Le cas du transport aérien européen," Revue Économique, Programme National Persée, vol. 47(6), pages 1269-1296.
    4. David Encaoua & Pierre Mohnen & Emmanuel Duguet & Bruno Crépon, 1993. "Diffusion du savoir et incitation à l'innovation : le rôle des accords de coopération en recherche et développement," Économie et Statistique, Programme National Persée, vol. 266(1), pages 47-63.
    5. WAUTHY, Xavier Y., 2014. "From Bertrand to Cournot via Kreps and Scheinkman: a hazardous journey," LIDAM Discussion Papers CORE 2014026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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