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Compatibility Investments in Duopoly with Demand Side Spillovers under Different Degrees of Cooperation

Listed author(s):
  • Christian Wey

This paper examines the effects of different degrees of cooperation on firms’ incentives to undertake interbrand compatibility investments, which benefit the competitor indirectly via an increase of its mass market demand. We find that cooperation in compatibility investments, while preserving competition on the product market, gives second-best welfare for all feasible values of the spillover parameter. For large spillover effects cartelization in compatibility investments and on the product market is welfare improving compared to pure competitive behavior. Furthermore, we examine the effects of an "open standardization policy" which increases the level of the spillover parameter. ZUSAMMENFASSUNG - (Kompatibilitätsinvestitionen im Duopol in der Gegenwart von nachfrageseitigen Spillover-Effekten und die Rolle von horizontaler Kooperation) Diese Arbeit untersucht die Wirkungen horizontaler Kooperation auf die Anreize der Unternehmen, Kompatibilitätsinvestitionen zu tätigen, die die Wettbewerbsposition des rivalisierenden Unternehmens auf dem Absatzmarkt verbessert. Es wird gezeigt, daß Kooperation auf der Investitionsstufe in Verbindung mit Konkurrenz auf dem Produktmarkt zu zweitbesten Wohlfahrtsergebnissen führt. Dieses Ergebnis gilt für alle zulässigen Werte des Spillover-Parameters. Für den Fall relativ großer Spillover-Effekte kann es sogar dazu kommen, daß eine vollständige Kartellierung der Unternehmen zu einer höheren Wohlfahrt führt als ein vollständig nicht-kooperatives Verhalten der Unternehmen. Damit betont der Beitrag die Effizienzgründe für horizontale Kooperationsformen wie Standardisierungsverbände, deren primärer Zweck die Erlangung von unternehmensübergreifender Kompatibilität ist. Des weiteren werden die Wirkungen einer .Politik offener Standards. untersucht, die zu einer Erhöhung der Spillover-Effekte führt. Schließlich wird gezeigt, daß eine asymmetrische Lösung die symmetrische Lösung dominieren kann, wenn die Unternehmen ihre Investitionsausgaben kooperativ und ihre Ausbringungsmengen nicht-kooperativ bestimmen.

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Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 99-02.

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Length: 50 pages
Date of creation: Feb 1999
Date of revision: Aug 1999
Publication status: Published in Zeitschrift für Wirtschafts- und Sozialwissenschaften , Vol. 119(3), 1999, pp. 399-427.
Handle: RePEc:wzb:wzebiv:fsiv99-02
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  1. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
  2. Eirik Kristiansen & Marcel Thum, 1997. "R&D incentives in compatible networks," Journal of Economics, Springer, vol. 65(1), pages 55-78, February.
  3. Amir, Rabah & Wooders, John, 2000. "One-Way Spillovers, Endogenous Innovator/Imitator Roles, and Research Joint Ventures," Games and Economic Behavior, Elsevier, vol. 31(1), pages 1-25, April.
  4. d'Aspremont, Claude & Jacquemin, Alexis, 1990. "Cooperative and Noncooperative R&D in Duopoly with Spillovers: Erratum," American Economic Review, American Economic Association, vol. 80(3), pages 641-642, June.
  5. 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.
  6. Joseph Farrell & Garth Saloner, 1985. "Installed Base and Compatibility With Implications for Product Preannouncements," Working papers 385, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
  8. Rabah Amir & John Wooders, 1999. "Effects of One-Way Spillovers on Market Shares, Industry Price, Welfare, and R & D Cooperation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(2), pages 223-249, 06.
  9. Shapiro, Carl & Willig, Robert D, 1990. "On the Antitrust Treatment of Production Joint Ventures," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 113-130, Summer.
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