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Compatibility with Firm Dominance

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  • Viecens María Fernanda

    (Fundación de Estudios deEconomía Aplicada)

Abstract

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.

Suggested Citation

  • Viecens María Fernanda, 2011. "Compatibility with Firm Dominance," Review of Network Economics, De Gruyter, vol. 10(4), pages 1-27, December.
  • Handle: RePEc:bpj:rneart:v:10:y:2011:i:4:n:4
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    References listed on IDEAS

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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.
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    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, March.
    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. 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.
    10. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-371, June.
    11. Miao Chun-Hui, 2009. "Limiting Compatibility in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 8(4), pages 1-19, December.
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    Cited by:

    1. Maruyama, Masayoshi & Zennyo, Yusuke, 2015. "Application compatibility and affiliation in two-sided markets," Economics Letters, Elsevier, vol. 130(C), pages 39-42.
    2. repec:eee:iepoli:v:40:y:2017:i:c:p:1-12 is not listed on IDEAS

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