IDEAS home Printed from https://ideas.repec.org/a/wsi/ijitmx/v08y2011i04ns0219877011002581.html
   My bibliography  Save this article

Compatibility Strategies For An Asymmetric Duopoly Considering Network Effects And Market Shares

Author

Listed:
  • FAN-CHEN TSENG

    (Department of Information and Electronic Commerce, Kainan University, No. 1, Kainan Road, Luzhu Shiang, Taoyuan 33857, Taiwan, R.O.C)

  • KUANG-CHENG ANDY WANG

    (Social Science Division, Center for General Education, Chang Gung University, 259, Wenhua 1st Rd, Gueishan Shiang, Taoyuan 333, Taiwan, R.O.C)

Abstract

The network effect is a key factor influencing the development of e-business and technological innovation. At the same time, compatibility decisions can determine the success or failure of businesses and technologies. This study explores the compatibility strategies in the context of network effects using a two-stage game-theoretical model for a duopoly. In the first stage, two firms make their compatibility decisions, and in the second stage, two firms are engaged in Bertrand price competition. Major findings are (1) other things being fixed, two firms are more likely to be compatible with each other when they have similar market shares, (2) the compatibility decisions of firms will not be influenced by consumers' switching costs, (3) the order of their compatibility decisions will not change the resulting equilibrium, and (4) based on firms' compatibility decisions, the Bertrand price competition may still lead to market failure, necessitating governmental intervention or regulations.

Suggested Citation

  • Fan-Chen Tseng & Kuang-Cheng Andy Wang, 2011. "Compatibility Strategies For An Asymmetric Duopoly Considering Network Effects And Market Shares," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 8(04), pages 615-634.
    • Handle: RePEc:wsi:ijitmx:v:08:y:2011:i:04:n:s0219877011002581
    DOI: 10.1142/S0219877011002581
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219877011002581
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219877011002581?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001, January.
    2. Nicholas Economides & Fredrick Flyer, 1997. "Compatibility and Market Structure for Network Goods," Working Papers 98-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Katz, Michael L & Shapiro, Carl, 1986. "Product Compatibility Choice in a Market with Technological Progress," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 146-165, Suppl. No.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Jiawei, 2018. "Switching costs and network compatibility," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 1-30.
    2. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2009. "Avoiding market dominance: product compatibility in markets with network effects," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 455-485, September.
    3. Fabio Manenti & Ernesto Somma, 2008. "One-Way Compatibility, Two-Way Compatibility and Entry in Network Industries," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 15(3), pages 301-322.
    4. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    5. Manfred Stadler & Céline Tobler Trexler & Maximiliane Unsorg, 2022. "The Perpetual Trouble with Network Products Why IT Firms Choose Partial Compatibility," Networks and Spatial Economics, Springer, vol. 22(4), pages 903-913, December.
    6. Ewald Scherm & Christian Maaß, 2006. "Zum Stellenwert der Netzwerkökonomik in der Strategie-/Marketingforschung —Eine Analyse empirischer Untersuchungen," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 17(1), pages 27-46, March.
    7. Paul DiMaggio & Joseph Cohen, 2003. "Information Inequality and Network Externalities: A Comparative Study of the Diffusion of Television and the Internet," Working Papers 36, Princeton University, School of Public and International Affairs, Center for Arts and Cultural Policy Studies..
    8. Davide Consoli & Pier Paolo Patrucco, 2011. "Complexity and the Coordination of Technological Knowledge: The Case of Innovation Platforms," Chapters, in: Handbook on the Economic Complexity of Technological Change, chapter 8 Edward Elgar Publishing.
    9. Dutta, Dilip & Otsuka, Kozo, 2004. "Knowledge Spillover from Information and Communication Technology: A Comparative Study of Australia, Japan, South Korea and Taiwan," Working Papers 8, University of Sydney, School of Economics.
    10. Christian Dahl Winther, 2007. "Optimal research effort and product differentiation in network industries," Economics Working Papers 2007-19, Department of Economics and Business Economics, Aarhus University.
    11. Reme Bjørn-Atle, 2019. "Competition in Markets with Quality Uncertainty and Network Effects," Review of Network Economics, De Gruyter, vol. 18(4), pages 205-242, December.
    12. Slowak, André P., 2009. "Market fields structure & dynamics in industrial automation," FZID Discussion Papers 02-2009, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    13. Johannes M. Bauer & Michael Latzer, 2016. "The economics of the Internet: an overview," Chapters, in: Johannes M. Bauer & Michael Latzer (ed.), Handbook on the Economics of the Internet, chapter 1, pages 3-20, Edward Elgar Publishing.
    14. Jean Gabszewicz & Victor Ginsburgh & Shlomo Weber, 2011. "Bilingualism and Communicative Benefits," Annals of Economics and Statistics, GENES, issue 101-102, pages 271-286.
    15. repec:zbw:bofrdp:2005_019 is not listed on IDEAS
    16. Victor Ginsburgh & Jacques Melitz & Farid Toubal, 2014. "Foreign Language Learning : An Econometric Analysis," Working Papers 2014-21, Center for Research in Economics and Statistics.
    17. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    18. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago.
    19. Nicholas Economides & Brian Viard, 2003. "Pricing of Complementary Goods and Network Effects," Working Papers 03-12, New York University, Leonard N. Stern School of Business, Department of Economics.
    20. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, University Library of Munich, Germany.
    21. Herguera-García, Iñigo & Aguilar-Barceló, José G., 2004. "El papel de las tarifas de interconexión en las industrias en red [The role of interconnection charges in network industries]," MPRA Paper 4733, University Library of Munich, Germany, revised Jan 2004.

    Corrections

    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:wsi:ijitmx:v:08:y:2011:i:04:n:s0219877011002581. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijitm/ijitm.shtml .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.