Product Compatibility and Technological Innovation
This paper explores the relationship between the firms' compatibility choice and quality improving technological progress in a static model. I demonstrate that firms' compatibility choice in anticipation of quality improving innovation critically depends on how users' expectations regarding the network size are formed. In particular, if users have rational expectations the firm with the small innovation will prefer full compatibility whereas the firm with the large innovation will prefer complete incompatibility,, and as a result, with the small innovation, excessive standardization may occur. [D13]
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Volume (Year): 14 (2000)
Issue (Month): 3 ()
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References listed on IDEAS
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- de Bijl, P.W.J. & Goyal, S., 1992.
"Technological change in markets with network externalities,"
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- Joseph Farrell and Garth Saloner., 1989. "Converters, Compatibility, and the Control of Interfaces," Economics Working Papers 89-130, University of California at Berkeley.
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- Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-1181, December.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
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