Working paper

Compatibility Choices under Switching Costs

Doh-Shin Jeon, Domenico Menicucci, and Nikrooz Nasr

Abstract

e study firms’ compatibility choices in the presence of consumers’ switching costs. We analyze both a model of once-and-for-all compatibility choices and that of dynamic choices. Contrary to what happens in a static setting in which firms embrace compatibility to soften the current competition (Matutes and Régibeau, 1988), when consumer lock-in arises due to a significant switching cost, firms make their products incompatible in order to soften future competition, regardless of the model we consider. This reduces consumer surplus and social welfare.

Keywords

Compatibility; Incompatibility; Switching Cost; Lock-in;

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • L13: Oligopoly and Other Imperfect Markets
  • L41: Monopolization • Horizontal Anticompetitive Practices

Reference

Doh-Shin Jeon, Domenico Menicucci, and Nikrooz Nasr, Compatibility Choices under Switching Costs, TSE Working Paper, n. 16-691, September 2016, revised December 2018.

See also

Published in

TSE Working Paper, n. 16-691, September 2016, revised December 2018