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Compatibility, Intellectual Property,Innovation and Welfare in Durable Goods Markets with Network Effects

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  • Athanasopoulos, Thanos

    (Department of Economics, University of Warwick)

Abstract

This paper analyses firms’ behaviour towards compatibility and the relation of these decisions with their incentives to invest into improving their durable, network goods. By using a sequential game where the dominant firm plays first, we give its competitor the ability to build on innovations previously introduced by the market leader. Recognizing the intertemporal linkage in forward looking customers’purchasing choices, we find that in anticipation of a relatively large quality improvement by the rival, strategic pricing leads the dominant firm to support compatibility even if it could exclude its rivals by using a patent for its invention. Furthermore, not only doesn’t interoperability de-facto maximise social welfare but we also identify no market failure when network effects are not particularly strong. JEL classification: D43 ; L13 ; D71 ; D62 ; L15 ; L4 ; K21 ; L51 ; O34 ; O31

Suggested Citation

  • Athanasopoulos, Thanos, 2014. "Compatibility, Intellectual Property,Innovation and Welfare in Durable Goods Markets with Network Effects," The Warwick Economics Research Paper Series (TWERPS) 1043, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1043
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    References listed on IDEAS

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    Cited by:

    1. Athanasopoulos, Thanos, 2015. "Incentives to Innovate, Compatibility and Welfare in Durable Goods Markets with Network Effects," Economic Research Papers 270229, University of Warwick - Department of Economics.
    2. Athanasopoulos, Thanos, 2014. "Incentives to Innovate, Compatibility and Efficiency in Durable Goods Markets with Network Effects," The Warwick Economics Research Paper Series (TWERPS) 1054, University of Warwick, Department of Economics.

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    More about this item

    Keywords

    Firms ; Pricing ; Compatibility ; Innovation ; Technological Change ; Intellectual Property Rights ; Antitrust Law ; Competition ; Externalities ; Product Durability ; Welfare;
    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
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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