Optimal Compatibility in Systems Markets

Arbeitspapier

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 interest 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5037

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Oligopoly and Other Imperfect Markets ; Firm Organization and Market Structure
• Subject: compatibility ; system competition ; standardization ; spatial competition model ; free entry

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kim, Sang-Hyun ; Choi, Jay Pil
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/105129
• Last update: 10.03.2025, 11:45 AM CET