Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105129
Authors: 
Kim, Sang-Hyun
Choi, Jay Pil
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 5037
Abstract: 
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.
Subjects: 
compatibility
system competition
standardization
spatial competition model
free entry
JEL: 
D43
L13
L22
Document Type: 
Working Paper

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