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Compatibility with Firm Dominance

Listed author(s):
  • Viecens María Fernanda

    (Fundación de Estudios deEconomía Aplicada)

Registered author(s):

    This paper considers the effect of compatibility decisions on consumers and welfare in a setting where the platforms are asymmetric and consumers have to decide both which platform to join and which applications to buy that run on these platforms. The paper shows that imposing a higher degree of application compatibility, when applications are close substitutes, may lower social welfare. Application compatibility is compared with platform compatibility and the results indicate that the two types of compatibility have opposite implications for how firms and consumers are affected by compatibility. Finally, it is shown that a policy of application compatibility that increases static efficiency can have adverse effects on dynamic efficiency.

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    File URL: https://www.degruyter.com/view/j/rne.2011.10.issue-4/1446-9022.1262/1446-9022.1262.xml?format=INT
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    Article provided by De Gruyter in its journal Review of Network Economics.

    Volume (Year): 10 (2011)
    Issue (Month): 4 (December)
    Pages: 1-27

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    Handle: RePEc:bpj:rneart:v:10:y:2011:i:4:n:4
    Contact details of provider: Web page: https://www.degruyter.com

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    1. Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-472, December.
    2. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2009. "Avoiding market dominance: product compatibility in markets with network effects," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 455-485.
    3. Tommaso M. Valletti & Carlo Cambini, 2005. "Investments and Network Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 446-468, Summer.
    4. Nicholas Economides, 2006. "Public Policy in Network Industries," Working Papers 06-17, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Jeffrey Church & Neil Gandal, 2000. "Systems Competition, Vertical Merger, and Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 25-51, 03.
    6. David A. Malueg & Marius Schwartz, 2006. "COMPATIBILITY INCENTIVES OF A LARGE NETWORK FACING MULTIPLE RIVALS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 527-567, December.
    7. David S. Evans & Andrei Hagiu & Richard Schmalensee, 2008. "Invisible Engines: How Software Platforms Drive Innovation and Transform Industries," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550687, July.
    8. Ramon Casadesus-Masanell & Francisco Ruiz-Aliseda, 2008. "Platform Competition, Compatibility, and Social Efficiency," Working Papers 08-32, NET Institute.
    9. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-371, June.
    10. Miao Chun-Hui, 2009. "Limiting Compatibility in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 8(4), pages 1-19, December.
    11. Corts, Kenneth S. & Lederman, Mara, 2009. "Software exclusivity and the scope of indirect network effects in the U.S. home video game market," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 121-136, March.
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