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Mix-and-Match Compatibility in Asymmetric System Markets

  • Jong-Hee Hahn
  • Sang-Hyun Kim

This paper shows that the private incentive for mix-and-match compatibility in system markets diverges from the social planner's incentive if competing suppliers are asymmetric in production cost or product quality. There can be too much or too little compatibility when the market is served by fully integrated system suppliers. Also, the market outcome involves socially too much incompatibility in the form of exclusive technological alliances when the market is composed of independent component suppliers. These results contrast with the standard one obtained in the symmetric setup and shed new light on public policy towards compatibility, technological alliances, and bundling practices in system markets.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 168 (2012)
Issue (Month): 2 (June)
Pages: 311-338

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201206)168:2_311:mciasm_2.0.tx_2-g
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  1. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
  2. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-98, March.
  3. Joseph Farrell & Hunter K. Monroe & Garth Saloner, 1998. "The Vertical Organization of Industry: Systems Competition versus Component Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 143-182, 06.
  4. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 159-187.
  5. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
  6. Chen, Yongmin, 1997. "Equilibrium Product Bundling," The Journal of Business, University of Chicago Press, vol. 70(1), pages 85-103, January.
  7. Boom, Anette, 2001. "On the Desirability of Compatibility with Product Selection," Journal of Industrial Economics, Wiley Blackwell, vol. 49(1), pages 85-96, March.
  8. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December.
  9. Michael A. Einhorn, 1992. "Mix and Match Compatibility with Vertical Product Dimensions," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 535-547, Winter.
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