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A Duopoly Logit Model with Price Competition and Strategic Compatibility

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  • Nicolas Jonard
  • Eric Schenk

Abstract

This paper provides an analysis of compatibility in a sequential game in which firms first choose whether they supply compatible products and then set the price which they charge. The equilibrium compatibility configuration is the outcome of a trade-off between consumers' valuation of compatibility, and the loss in terms of product differentiation stemming from adhesion to a common standard. Compatibility is achieved provided the compatibility premium is not offset by the intensity of price competition Further, there tends to be under-provision of standardization.

Suggested Citation

  • Nicolas Jonard & Eric Schenk, 2003. "A Duopoly Logit Model with Price Competition and Strategic Compatibility," Annals of Economics and Statistics, GENES, issue 69, pages 143-168.
    • Handle: RePEc:adr:anecst:y:2003:i:69:p:143-168
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    File URL: http://www.jstor.org/stable/20076367
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    Cited by:

    1. Mikhail Klimenko & Kamal Saggi, 2007. "Technical compatibility and the mode of foreign entry with network externalities," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 176-206, February.

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