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Compatibility and the Product Life Cycle in Two-Sided Markets

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  • Maruyama Masayoshi
  • Zennyo Yusuke

    (Kobe University, Graduate School of Business Administration, 2-1 Rokkodai, Nada-ku, Kobe 657-8501, Japan)

Abstract

We consider a case in which two competing suppliers of hardware devices and content each chooses whether to make its content compatible with the other’s device. Our main result is that the outcome of these choices depends upon whether the firms’ major source of profit lies in the sale of hardware devices or in royalties from the sale of content. If the hardware is the main source of profit then incompatibility is a dominant strategy. If royalties are the main source of profit then compatibility is the dominant strategy. Which of these situations attains is likely to change over the product life cycle. We add to the literature by showing the equilibrium structure of compatibility in a two-sided market.

Suggested Citation

  • Maruyama Masayoshi & Zennyo Yusuke, 2013. "Compatibility and the Product Life Cycle in Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 12(2), pages 131-155, June.
    • Handle: RePEc:bpj:rneart:v:12:y:2013:i:2:p:131-155:n:4
    DOI: 10.1515/rne-2013-0011
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    References listed on IDEAS

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    4. Georgios Petropoulos & Bertin Martens & Geoffrey Parker & Marshall Van Alstyne, 2023. "Platform Competition and Information Sharing," CESifo Working Paper Series 10663, CESifo.
    5. Garcia Pires Armando J., 2020. "Content Provision in the Media Market with Single-Homing and Multi-Homing Consumers," Review of Network Economics, De Gruyter, vol. 19(1), pages 43-83, March.
    6. Ding, Rong & Ko, Chiu Yu & Shen, Bo, 2022. "Partial compatibility in two-sided markets: Equilibrium and welfare analysis," Economic Modelling, Elsevier, vol. 116(C).
    7. Maruyama, Masayoshi & Zennyo, Yusuke, 2017. "Process innovation, application compatibility, and welfare," Information Economics and Policy, Elsevier, vol. 40(C), pages 1-12.
    8. Maruyama, Masayoshi & Zennyo, Yusuke, 2015. "Application compatibility and affiliation in two-sided markets," Economics Letters, Elsevier, vol. 130(C), pages 39-42.
    9. Dohoon Kim, 2018. "Equilibrium Analysis for Platform Developers in Two-Sided Market with Backward Compatibility," Games, MDPI, vol. 9(4), pages 1-24, October.
    10. Wang, Wei & Lyu, Gaoyan, 2020. "Sequential product positioning on a platform in the presence of network effects," International Journal of Production Economics, Elsevier, vol. 229(C).

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