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Mix-and-Match Compatibility in Asymmetric System Markets

Jong-Hee Hahn () and Sang-Hyun Kim

Journal of Institutional and Theoretical Economics (JITE), 2012, vol. 168, issue 2, 311-338

Abstract: This paper shows that the private incentive for mix-and-match compatibility in system markets diverges from the social planner's incentive if competing suppliers are asymmetric in production cost or product quality. There can be too much or too little compatibility when the market is served by fully integrated system suppliers. Also, the market outcome involves socially too much incompatibility in the form of exclusive technological alliances when the market is composed of independent component suppliers. These results contrast with the standard one obtained in the symmetric setup and shed new light on public policy towards compatibility, technological alliances, and bundling practices in system markets.

JEL-codes: D42 L12 (search for similar items in EconPapers)
Date: 2012
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