Abstract
Firms that produce network goods have strong incentives to adhere to common technical standards. However, adhering to common standards decreases the horizontal differentiation between goods, and that increases market competition. This paper analyzes how these countervailing forces shape firms’ decisions to comply to common technical standards under oligopoly. In the model, firms’ outputs are identical in non-network characteristics, but firms can adhere to different compatibility standards. Consequently, a good’s relative quality level is determined by the total sales of compatible goods. The technical standards coalition structures that form at equilibrium under this framework exhibit interesting characteristics. In particular, coalitions that vary greatly in total sales, profits, and prices often emerge, even though underlying products and cost structures are identical across firms.
We thank participants of the “The Economics and Econometrics of Innovation” conference, two anonymous referees and the editor for their comments and suggestions.
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Economides, N., Flyer, F. (2000). Equilibrium Coalition Structures in Markets for Network Goods. In: The Economics and Econometrics of Innovation. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-3194-1_13
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DOI: https://doi.org/10.1007/978-1-4757-3194-1_13
Publisher Name: Springer, Boston, MA
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