IDEAS home Printed from https://ideas.repec.org/a/kap/jeczfn/v145y2025i1d10.1007_s00712-024-00896-5.html
   My bibliography  Save this article

Quality competition and product compatibility in network industries

Author

Listed:
  • Yi-Ling Cheng

    (National Sun Yat-sen University)

  • Hsiang-Yun Huang

    (National Sun Yat-sen University)

Abstract

This paper investigates the interplay between product compatibility and quality competition in network industries. Our findings indicate that when firms have veto power over product compatibility, high network externalities inevitably lead to incompatibility, making compatibility unattainable. Without veto power, however, compatibility always emerges. This suggests that patent protection may impede compatibility, particularly in the presence of significant network externalities. Moreover, our results highlight the benefits of compatibility, including improved product quality, higher profits, increased consumer surplus, and overall welfare. We further demonstrate that an increase in externalities boosts product quality when products are compatible but reduces it when they are incompatible, while expanding vertical product differentiation in both cases.

Suggested Citation

  • Yi-Ling Cheng & Hsiang-Yun Huang, 2025. "Quality competition and product compatibility in network industries," Journal of Economics, Springer, vol. 145(1), pages 31-57, June.
  • Handle: RePEc:kap:jeczfn:v:145:y:2025:i:1:d:10.1007_s00712-024-00896-5
    DOI: 10.1007/s00712-024-00896-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00712-024-00896-5
    File Function: Abstract
    Download Restriction: no

    File URL: https://libkey.io/10.1007/s00712-024-00896-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Product compatibility; Quality competition; Network externalities; Vertical product differentiation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jeczfn:v:145:y:2025:i:1:d:10.1007_s00712-024-00896-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.