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Compatibility, Interoperability, and Market Power in Upgrade Markets

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Listed:
  • James J. Anton
  • Gary Biglaiser

Abstract

We examine the market power of a seller who repeatedly offers upgraded versions of a product. In the case of pure monopoly, the seller also controls compatibility across versions. In the case of an entrant who offers an upgrade, the incumbent seller also controls subsequent interoperability across versions. We argue that control of compatibility and interoperability does not allow an incumbent seller to charge a price premium relative to when such control is absent and, consequently, neither is a necessary source of market power.

Suggested Citation

  • James J. Anton & Gary Biglaiser, 2010. "Compatibility, Interoperability, and Market Power in Upgrade Markets," Working Papers 10-31, Duke University, Department of Economics.
    • Handle: RePEc:duk:dukeec:10-31
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    References listed on IDEAS

    as
    1. Drew Fudenberg & Jean Tirole, 1998. "Upgrades, Tradeins, and Buybacks," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 235-258, Summer.
    2. Federico Etro, 2007. "Competition, Innovation, and Antitrust," Springer Books, Springer, number 978-3-540-49601-4, June.
    3. Glenn Ellison & Drew Fudenberg, 2000. "The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 253-272, Summer.
    4. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
    5. Arthur Fishman & Rafael Rob, 2000. "Product Innovation by a Durable-Good Monpoly," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 237-252, Summer.
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    Cited by:

    1. Anton, James J. & Biglaiser, Gary, 2013. "Quality, upgrades and equilibrium in a dynamic monopoly market," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1179-1212.

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    More about this item

    Keywords

    Upgrade markets; Compatibility; Standards; Interoperability; Innovation;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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