Compatibility and product design in software markets

Bernd Woeckener

No 173, Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics

Abstract: This paper analyzes the interplay between compatibility and product design decisions in a symmetric software duopoly with network effects. We show that suppliers do not always offer differentiated product designs and compete within the market. Rather, when ever both the significance of the network effects and the costs of compatibility are high, they offer homogeneous and incompatible variants and compete for the market, although this leads to Bertrand competition with zero profits. Moreover, we show that given our symmetric setting, antitrust authorities should never intervene against incompatibility, whereas compatibility arrangements should always be under their scrutiny.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuedps:173

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