Joint market dominance through exclusionary compatibility

Jihwan Do ()
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Jihwan Do: Yonsei University

International Journal of Game Theory, 2023, vol. 52, issue 4, No 6, 1077-1110

Abstract: Abstract This paper studies an infinite horizon oligopoly model in markets with network effects and segmented demands. In each period, three firms make compatibility decisions before competing in prices for a newly arrived consumer. The firm that made a sale in the last period provides a better product quality in terms of an installed base consumer, which can be shared with its rivals through compatibility. We show that compatibility can be used as an exclusionary device even though it intensifies short-run price competition when firms are sufficiently patient. Under certain conditions, this is the only stable prediction with respect to a dynamic analog of strong stability in network formation games (Dutta and Mutuswami in J Econ Theory 76:322–344, 1997).

Keywords: Dynamic competition; Network externalities; Compatibility; Joint dominance; Exclusion (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00182-023-00846-3

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