Compatibility with Firm Dominance
This paper analyzes the effect of firm dominance on the incentives to become compatible and how compatibility decisions affect investment incentives. We will consider compatibility in two dimensions: compatibility of the complementary good and inter-network compatibility. We show that if products are substitutes, compatibility tends to be welfare decreasing with the potential negative consequences of increasing compatibility being more likely when asymmetries are strong. We also find that in many instances the dominant firm’s interests regarding compatibility are in line with those of users, and are opposite to those of the weak firm, which will always demand more compatibility to be enforced. Finally we show that compatibility may harm innovation, particularly for the dominant firm.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-71, June.
- Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000.
"Connectivity in the Commercial Internet,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 48(4), pages 433-72, December.
- Joseph Farrell & Garth Saloner, 1985.
"Standardization, Compatibility, and Innovation,"
RAND Journal of Economics,
The RAND Corporation, vol. 16(1), pages 70-83, Spring.
- Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer, vol. 22(1), pages 27-46, February.
- Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
- Jeffrey Church & Neil Gandal, 2000.
"Systems Competition, Vertical Merger, and Foreclosure,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 9(1), pages 25-51, 03.
- Church, J. & Gandal, N., 1996. "Systems Competition, Vertical Merger and Foreclosure," Papers 6-96, Tel Aviv - the Sackler Institute of Economic Studies.
- Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
- Toker Doganoglu & Julian Wright, 2003.
"Multihoming and compatibility,"
Departmental Working Papers
wp0314, National University of Singapore, Department of Economics.
- Nicholas Economides & Evangelos Katsamakas, 2005.
"Linux vs. Windows: A comparison of application and platform innovation incentives for open source and proprietary software platforms+,"
05-03, NET Institute, revised Sep 2005.
- Nicholas Economides & Evangelos Katsamakas, 2005. "Linux vs. Windows: A comparison of application and platform innovation incentives for open source and proprietary software platforms," Working Papers 05-07, NET Institute.
- repec:rne:rneart:v:6:y:2007:i:1:p:1-15 is not listed on IDEAS
- Clements, Matthew T., 2004. "Direct and indirect network effects: are they equivalent?," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 633-645, May.
- Timothy H. Hannan & Ron Borzekowski, 2006.
"Incompatibility and investment in ATM networks,"
Finance and Economics Discussion Series
2006-36, Board of Governors of the Federal Reserve System (U.S.).
- Jay Pil Choi, 2003. "Antitrust Analysis of Mergers with Bundling in Complementary Markets: Implications for Pricing, Innovation, and Compatibility Choice," Working Papers 03-02, NET Institute, revised Oct 2003.
- Robin S. Lee, 2007. "Vertical Integration and Exclusivity in Two-Sided Markets," Working Papers 07-39, NET Institute, revised Aug 2012.
- Ulrich Doraszelski & Joe Harrington & Jiawei Chen, 2009.
"Avoiding Market Dominance: Product Compatibility in Markets with Network Effects,"
2009 Meeting Papers
30, Society for Economic Dynamics.
- 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.
- Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2008. "Avoiding Market Dominance: Product Compatibility in Markets with Network Effects," Economics Working Paper Archive 537, The Johns Hopkins University,Department of Economics.
- Economides, Nicholas & White, Lawrence J., 1994. "Networks and compatibility: Implications for antitrust," European Economic Review, Elsevier, vol. 38(3-4), pages 651-662, April.
- Lawrence J. White, 2007. "A New Law for the Bond Rating Industry-- For Better or For Worse?," Working Papers 07-5, New York University, Leonard N. Stern School of Business, Department of Economics.
- 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.
- Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
- David A. Malueg & Marius Schwartz, 2006. "COMPATIBILITY INCENTIVES OF A LARGE NETWORK FACING MULTIPLE RIVALS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 527-567, December.
When requesting a correction, please mention this item's handle: RePEc:fda:fdaddt:2009-12. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carmen Arias)
If references are entirely missing, you can add them using this form.