IDEAS home Printed from https://ideas.repec.org/a/kap/netspa/v22y2022i4d10.1007_s11067-022-09572-x.html
   My bibliography  Save this article

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

Author

Listed:
  • Manfred Stadler

    (University of Tübingen)

  • Céline Tobler Trexler

    (University of Tübingen)

  • Maximiliane Unsorg

    (University of Tübingen)

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.

Suggested Citation

  • Manfred Stadler & Céline Tobler Trexler & Maximiliane Unsorg, 2022. "The Perpetual Trouble with Network Products Why IT Firms Choose Partial Compatibility," Networks and Spatial Economics, Springer, vol. 22(4), pages 903-913, December.
    • Handle: RePEc:kap:netspa:v:22:y:2022:i:4:d:10.1007_s11067-022-09572-x
    DOI: 10.1007/s11067-022-09572-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11067-022-09572-x
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11067-022-09572-x?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
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kim, Sang-Hyun & Choi, Jay Pil, 2015. "Optimal compatibility in systems markets," Games and Economic Behavior, Elsevier, vol. 90(C), pages 106-118.
    2. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-841, August.
    3. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    4. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521800952.
    5. Kim, Jeong-Yoo, 2002. "Product compatibility as a signal of quality in a market with network externalities," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 949-964, September.
    6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    7. Katz, Michael L & Shapiro, Carl, 1986. "Product Compatibility Choice in a Market with Technological Progress," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 146-165, Suppl. No.
    8. David, Paul A. & Steinmueller, W. Edward, 1994. "Economics of compatibility standards and competition in telecommunication networks," Information Economics and Policy, Elsevier, vol. 6(3-4), pages 217-241, December.
    9. Neil Gandal, 2002. "Compatibility, Standardization, and Network Effects: Some Policy Implications," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 18(1), pages 80-91, Spring.
    10. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
    11. Gandal, Neil & Church, Jeffrey, 2004. "Platform Competition in Telecommunications," CEPR Discussion Papers 4659, C.E.P.R. Discussion Papers.
    12. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-1181, December.
    13. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    14. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Domenico Buccella & Luciano Fanti & Luca Gori, 2023. "Strategic product compatibility in network industries," Journal of Economics, Springer, vol. 140(2), pages 141-168, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Domenico Buccella & Luciano Fanti & Luca Gori, 2023. "Strategic product compatibility in network industries," Journal of Economics, Springer, vol. 140(2), pages 141-168, October.
    2. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    3. Buccella Domenico & Fanti Luciano & Gori Luca, 2024. "Product Quality and Product Compatibility in Network Industries," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(1), pages 299-339, January.
    4. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    5. Ewald Scherm & Christian Maaß, 2006. "Zum Stellenwert der Netzwerkökonomik in der Strategie-/Marketingforschung —Eine Analyse empirischer Untersuchungen," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 17(1), pages 27-46, March.
    6. Nicholas Economides & Brian Viard, 2003. "Pricing of Complementary Goods and Network Effects," Working Papers 03-12, New York University, Leonard N. Stern School of Business, Department of Economics.
    7. Alexei Alexandrov, 2015. "Anti-Competitive Interconnection: the effects of the elasticity of consumers' expectations and the shape of the network effects function," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 74-99, March.
    8. Matutes, Carmen & Regibeau, Pierre, 1996. "A selective review of the economics of standardization. Entry deterrence, technological progress and international competition," European Journal of Political Economy, Elsevier, vol. 12(2), pages 183-209, September.
    9. Karacuka, Mehmet & Çatık, A. Nazif & Haucap, Justus, 2013. "Consumer choice and local network effects in mobile telecommunications in Turkey," Telecommunications Policy, Elsevier, vol. 37(4), pages 334-344.
    10. Hattori Keisuke & Lin Ming-Hsin, 2011. "Alliance Partner Choice in Markets with Vertical and Horizontal Externalities," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-27, June.
    11. Heli Koski & Tobias Kretschmer, 2004. "Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications," Journal of Industry, Competition and Trade, Springer, vol. 4(1), pages 5-31, March.
    12. repec:zbw:bofism:2006_038 is not listed on IDEAS
    13. Nicholas Economides, "undated". "Network Economics with Application to Finance," Financial Networks _004, Economics of Networks.
    14. Laura Baraldi, 2004. "Esternalita' Di Rete: Una Rassegna," Working Papers 12_2004, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    15. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107069978.
    16. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Scientific Monographs, Bank of Finland, number 2006_038.
    17. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    18. Wu, Chi-Cheng & Chen, Ying-Ju & Cho, Yung-Jan, 2013. "Nested Network Effects in Online Free Games with Accessory Selling," Journal of Interactive Marketing, Elsevier, vol. 27(3), pages 158-171.
    19. Slowak, André P., 2009. "Market fields structure & dynamics in industrial automation," FZID Discussion Papers 02-2009, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    20. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2006_038, March.
    21. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, University Library of Munich, Germany.

    More about this item

    Keywords

    Network products; Network effects; Compatibility;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • 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:netspa:v:22:y:2022:i:4:d:10.1007_s11067-022-09572-x. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.