Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Monday, March 2, 2009

Compatibility with Firm Dominance

Posted by D. Daniel Sokol

Maria Fernanda Viecens of FEDEA analyzes Compatibility with Firm Dominance.

ABSTRACT: This paper analyzes the effect of firm dominance on the incentives to become compatible and how compatibility decisions affect investment incentives. We will consider compatibility in two dimensions: compatibility of the complementary good and inter-network compatibility. We show that if products are substitutes, compatibility tends to be welfare decreasing with the potential negative consequences of increasing compatibility being more likely when asymmetries are strong. We also find that in many instances the dominant firm’s interests regarding compatibility are in line with those of users, and are opposite to those of the weak firm, which will always demand more compatibility to be enforced. Finally we show that compatibility may harm innovation, particularly for the dominant firm.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/03/compatibility-w.html

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