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Limiting Compatibility in Two-sided Markets

Author

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  • Miao Chun-Hui

    () (Department of Economics, University of South Carolina)

Abstract

In two-sided markets where the platform is composed of a set of components, a monopolist may have an incentive to foreclose competition in the complementary market. By introducing incompatibility, the monopolist can exclude its complementors, thereby capturing surplus from both sides of customers. This type of behavior lowers social welfare. Private contracts such as a payment for compatibility can help restore efficiency, but its effectiveness depends on the form of the contract. The model's relevance to Microsoft's controversial practice of extending industry standards with proprietary capabilities is discussed.

Suggested Citation

  • Miao Chun-Hui, 2009. "Limiting Compatibility in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 8(4), pages 1-19, December.
  • Handle: RePEc:bpj:rneart:v:8:y:2009:i:4:n:4
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    Citations

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    Cited by:

    1. 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.
    2. Miao, Chun-Hui, 2011. "Planned obsolescence and monopoly undersupply," Information Economics and Policy, Elsevier, vol. 23(1), pages 51-58, March.
    3. Rasch, Alexander & Wenzel, Tobias, 2014. "Content provision and compatibility in a platform market," Economics Letters, Elsevier, vol. 124(3), pages 478-481.
    4. Viecens MarĂ­a Fernanda, 2011. "Compatibility with Firm Dominance," Review of Network Economics, De Gruyter, vol. 10(4), pages 1-27, December.
    5. Alexei Alexandrov, 2015. "Anti-Competitive Interconnection: the effects of the elasticity of consumers' expectations and the shape of the network effects function," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 74-99, March.
    6. repec:eee:iepoli:v:40:y:2017:i:c:p:1-12 is not listed on IDEAS

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