IDEAS home Printed from
   My bibliography  Save this article

A note on compatibility and entry in a circular model of product differentiation


  • Nicolas Jonard

    () (CNRS, CREA, Ecole Polytechnique)

  • Eric Schenk

    () (LRPS, INSA Strasbourg and BETA, Universite Louis Pasteur)


Consider an industry in which network goods are supplied by two horizontally differentiated firms facing the threat of a potential entrant. Firms' dilemma is between occupying the product space by selling very differentiated (incompatible) goods, and supplying compatible goods that offer higher utilities hence can be charged a higher price to consumers but are also closer substitutes. The compatibility-entry-price game is solved backward when firms and consumers are located on a circular product space. It turns out that strong externalities can favour entry, as merging the networks and accommodating entry can be preferred by the incumbents.

Suggested Citation

  • Nicolas Jonard & Eric Schenk, 2004. "A note on compatibility and entry in a circular model of product differentiation," Economics Bulletin, AccessEcon, vol. 12(1), pages 1-9.
  • Handle: RePEc:ebl:ecbull:eb-03l00001

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Chou, Chien-fu & Shy, Oz, 1996. "Do consumers gain or lose when more people buy the same brand," European Journal of Political Economy, Elsevier, vol. 12(2), pages 309-330, September.
    2. Kohlberg, Elon & Novshek, William, 1982. "Equilibrium in a simple price-location model," Economics Letters, Elsevier, vol. 9(1), pages 7-15.
    3. B. Curtis Eaton & Myrna Holtz Wooders, 1985. "Sophisticated Entry in a Model of Spatial Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 282-297, Summer.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Hend Ghazzai & Rim Lahmandi-Ayed, 2006. "Vertical differentiation, network externalities and compatibility decisions : an alternative approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00111166, HAL.
    2. Ghazzai Hend & Lahmandi-Ayed Rim, 2009. "Vertical Differentiation, Social Networks and Compatibility Decisions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-23, June.

    More about this item



    JEL classification:

    • L0 - Industrial Organization - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-03l00001. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.