Abstract
We study mix-and-match compatibility choices of firms selling complementary products in a dynamic setting. Contrary to what happens in a static setting where symmetric firms choose compatibility (Matutes and Regibeau 1988), when switching costs are high and firms make price discrimination based on past purchases, symmetric firms choose incompatibility to soften future competition if the discount factor is large, which harms consumers. Interoperability increases consumer surplus at least for high switching costs. Data portability, by reducing switching costs, induces the firms to choose compatibility more often but, given a compatibility regime, benefits consumers only if a nonnegative pricing constraint binds.
JEL codes
- D43: Oligopoly and Other Forms of Market Imperfection
- L13: Oligopoly and Other Imperfect Markets
- L41: Monopolization • Horizontal Anticompetitive Practices
Replaces
Doh-Shin Jeon, Domenico Menicucci, and Nikrooz Nasr, “Compatibility Choices, Switching Costs and Data Portability: On the Role of the Non-Negative Pricing Constraint”, TSE Working Paper, n. 16-691, September 2016, revised August 2020.
Reference
Doh-Shin Jeon, Domenico Menicucci, and Nikrooz Nasr, “Compatibility Choices, Switching Costs and Data Portability”, American Economic Journal: Microeconomics, vol. 15, n. 1, February 2023, pp. 30–73.
Published in
American Economic Journal: Microeconomics, vol. 15, n. 1, February 2023, pp. 30–73