The Perpetual Trouble with Network Products Why IT Firms Choose Partial Compatibility

Manfred Stadler, Céline Tobler Trexler and Maximiliane Unsorg
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Céline Tobler Trexler: University of Tübingen
Maximiliane Unsorg: University of Tübingen

Networks and Spatial Economics, 2022, vol. 22, issue 4, No 8, 903-913

Abstract: 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 independently 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 - conditions that typically characterize IT markets.

Keywords: Network products; Network effects; Compatibility; C72; L13; L15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11067-022-09572-x

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