Complementarity, Coordination and Compatibility: The Role of Fixed Costs in the Economics of Systems

Dominique Desruelle, Gérard Gaudet () and Yves Richelle
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Dominique Desruelle: International Monetary Fund
Yves Richelle: Universite Laval

Industrial Organization from EconWPA

Abstract: We analyze industry equilibrium and incentive to compatibility when goods produced by different producers generate utility only when consumed as component parts of a system. We assume the presence of two systems, each composed of some basic component and a set of differentiated complementary products. The combination of complementarity between the two components of the system and of fixed costs in the production of the complementary product results in a form of network effect. We focus on the role played by the size of the fixed costs in the production of the complementary products in determining the size of this system effect and, by this means, the structure and types of equilibria that may be observed: monopolistic or duopolistic, symmetric or asymmetric. We also highlight the consequence of the same fixed costs for the private and social incentives to render the systems compatible.

JEL-codes: L (search for similar items in EconPapers)
Date: Written
Note: 30 pages. This is a considerably revised version of Working Paper 9209, Departement des sciences economiques, Universite du Quebec a Montreal.
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Related works:
Journal Article: Complementarity, coordination and compatibility: The role of fixed costs in the economics of systems (1996)
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