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Compatibility Under Differentiated Duopoly with Network Externalities: A Comment

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  • Tsuyoshi Toshimitsu

Abstract

Chen and Chen (J Ind Compet Trade 11:43−55, 2011 ) analyze the effects of compatibility under system product Cournot competition with network externalities. They show that a firm’s optimal strategy is to set an incompatible system standard, even though perfect compatibility is socially optimal. In this case, a social dilemma arises. However, their result depends on a specific assumption about the network size. We use the framework of Shy ( 1995 ) to modify this assumption, and hence show that the social dilemma identified by Chen and Chen (J Ind Compet Trade 11:43−55, 2011 ) does not arise. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Tsuyoshi Toshimitsu, 2014. "Compatibility Under Differentiated Duopoly with Network Externalities: A Comment," Journal of Industry, Competition and Trade, Springer, vol. 14(3), pages 331-335, September.
    • Handle: RePEc:kap:jincot:v:14:y:2014:i:3:p:331-335
    DOI: 10.1007/s10842-013-0170-0
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    References listed on IDEAS

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    1. Ho-Chyuan Chen & Chien-Chen Chen, 2011. "Compatibility Under Differentiated Duopoly with Network Externalities," Journal of Industry, Competition and Trade, Springer, vol. 11(1), pages 43-55, March.
    2. Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September.
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    Cited by:

    1. John S. Heywood & Zerong Wang & Guangliang Ye, 2022. "R&D rivalry with endogenous compatibility," Manchester School, University of Manchester, vol. 90(3), pages 354-384, June.
    2. Tsuyoshi Toshimitsu, 2018. "Strategic Compatibility Choice, Network Alliance, and Welfare," Journal of Industry, Competition and Trade, Springer, vol. 18(2), pages 245-252, June.
    3. Porchiung Ben Chou & Cesar Bandera, 2020. "An Oligopoly Game with Network Effects for Compatible and Incompatible Standards: As Applied to Short and Multimedia Message Services," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(1), pages 27-46, June.

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    More about this item

    Keywords

    Network externality; Compatibility; System product; Cournot competition; D21; D43; D62;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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