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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26158
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| Title: | Standards Coalitions Formation and Market Structure in Network Securities |
| Authors: | Economides, Nicholas
Skrzypacz, Andrzej |
| Issue Date: | 1-Jan-2003 |
| Series/Report no.: | EC-03-08 |
| Abstract: | We discuss the formation of technical standards platforms in industries
with network externalities where firms are free to choose their degree
of technical compatibility with competitors. In our model, firms choose
affiliation to a technical standards coalition in the first stage of a
game, and play an oligopoly game in the second stage. In adding itself
to a technical standards coalition, a firm benefits from the network
effects of the whole coalition, but also faces increased competition in
the output market from other firms in the coalition. Also, the increase
of the size of the coalition changes the competitive position of members
of that coalition relative to other firms. We find that the extent and
size of coalitions at equilibrium depends crucially on the degree of the
intensity of network effects. When network effects are very strong, full
compatibility prevails. When externalities are slightly weaker, two
standards coalitions are formed, a singleton, and one with all remaining
firms. On the other extreme, for very weak network effects, the
equilibrium is total incompatibility, and for slightly more intense
network effects, coalitions are of small size. We characterize a number
of other equilibria for intermediate strengths of network externalities. |
| URI: | http://hdl.handle.net/2451/26158 |
| Appears in Collections: | Economics Working Papers
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