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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/29859
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| Title: | Product Compatibility in Network Industries with Switching Costs |
| Authors: | Chen, Jiawei - University of California, Irvine |
| Keywords: | product compatibility, switching costs, network industries, market dynamics |
| Issue Date: | 2010 |
| Series/Report no.: | Net Institute Working Paper;10-23 |
| Abstract: | This paper investigates how switching costs affect product compatibility
and market dynamics in network industries. A reduction in the switching
cost makes the firms' products more attractive relative to the outside
good, which diminishes the market expansion benefit of making products
compatible. As a result, the larger firm is more likely to veto
compatibility in order to maintain its installed base advantage over its
rival. Therefore, public policies that reduce switching costs in network
industries can change the market outcome from compatible products to
incompatible products. In the former, price competition is mild and the
market is often fragmented, whereas in the latter, there is fierce price
competition when firms are of comparable size and in the long run the
market is likely dominated by one firm. |
| URI: | http://hdl.handle.net/2451/29859 |
| Appears in Collections: | NET Institute Working Papers Series
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