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

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URI: http://hdl.handle.net/10900/117858
http://nbn-resolving.de/urn:nbn:de:bsz:21-dspace-1178581
http://dx.doi.org/10.15496/publikation-59233
Dokumentart: Aufsatz
Date: 2021-08-05
Source: University of Tübingen Working Papers in Business and Economics ; No. 150
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Economics
Other Keywords:
Compatibility
Network Products
Network Effects
License: Publishing license excluding print on demand
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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 strategically 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.

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