Optimal compatibility in systems markets

Sang-Hyun Kim and Jay Choi

Games and Economic Behavior, 2015, vol. 90, issue C, 106-118

Abstract: We investigate private and social incentives for standardization to ensure market-wide system compatibility in a two-dimensional spatial competition model. We develop a new methodology to analyze competition on a torus and show that there is a fundamental conflict of interests between consumers and producers over the standardization decision. Consumers prefer standardization with full compatibility because it offers more variety that confers a better match with their ideal specifications. However, firms are likely to choose the minimal compatibility to maximize product differentiation and soften competition. This is in sharp contrast to the previous literature that shows the alignment of private and social incentives for compatibility.

Keywords: Compatibility; System competition; Standardization; Spatial competition model (search for similar items in EconPapers)
JEL-codes: D43 L13 L22 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S089982561500024X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Optimal Compatibility in Systems Markets (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:90:y:2015:i:c:p:106-118

DOI: 10.1016/j.geb.2015.02.005

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().