Optimal compatibility in systems markets

Kim, Sang-Hyun and Choi, Jay Pil (2015) Optimal compatibility in systems markets. Games and Economic Behavior, 90. 106–118. ISSN 0899-8256

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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.

Item Type: Article
Uncontrolled Keywords: compatibility,system competition,standardization,spatial competition model
Faculty \ School: Faculty of Social Sciences > School of Economics
Depositing User: Pure Connector
Date Deposited: 09 Mar 2015 07:31
Last Modified: 21 Oct 2022 00:38
URI: https://ueaeprints.uea.ac.uk/id/eprint/52496
DOI: 10.1016/j.geb.2015.02.005


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