The perpetual trouble with network products: Why IT firms choose partial compatibility

Manfred Stadler, Céline Tobler Trexler and Maximiliane Unsorg

No 150, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: Compatibility of network products is an important issue in markets for communication technology as well as hard- and software products. Empirical findings suggest that firms competing in these markets typically choose intermediate degrees of product compatibility. We present a strategic two-stage game of two firms deciding strategically or commonly on the degree of product compatibility in the first stage and on prices in the second stage. Indeed, partial compatibility constitutes a subgame perfect Nash equilibrium when coordination costs of standardization are high and the installed bases are low.

Keywords: Compatibility; Network Products; Network Effects (search for similar items in EconPapers)
JEL-codes: C72 L13 L15 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-bec, nep-com, nep-gth, nep-ict, nep-ind, nep-isf and nep-mic
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Journal Article: The Perpetual Trouble with Network Products Why IT Firms Choose Partial Compatibility (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:150

DOI: 10.15496/publikation-59233

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