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Partially Compatible Brands And Consumer Welfare

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  • SHY, O.
  • CHOU, C-F.

Abstract

We propose an environment for modelling an industry producing differentiated brands which are partially compatible with each other. We show that when each brand is supported by its brand specific supporting services, a firm may increase the variety of its supporting services and its market share by reducing the degree of compatibility of its machine with other machines' supporting services. However, when a firm is not supported by its brand specific supporting services, it can only gain additional market share when it increases the compatibility of its machine. We also show that consumers benefit when machines become more compatible. However, consumers may become worse off and producers become better off when the products become one hundred percent compatible.
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Suggested Citation

  • Shy, O. & Chou, C-F., 1990. "Partially Compatible Brands And Consumer Welfare," Papers 34-90, Tel Aviv.
    • Handle: RePEc:fth:teavfo:34-90
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    References listed on IDEAS

    as
    1. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-841, August.
    2. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-371, June.
    3. 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.
    4. 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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    Cited by:

    1. Church, Jeffrey & Gandal, Neil, 1992. "Integration, Complementary Products, and Variety," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 651-675, Winter.
    2. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.

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