Vertical Product Di erentiation, Network Externalities, and Compatibility Decisions

  title={Vertical Product Di erentiation, Network Externalities, and Compatibility Decisions},
  author={Pio Baake and Anette Boom},
We analyse the subgame perfect equilibrium of a four stage game in a model of vertical product di erentiation, where the consumer's evaluation of a product depends on its inherent quality and on its network's size. First, two rms choose their product's inherent quality. Then they may mutually agree on providing an adapter before competing in prices. Finally, consumers buy. We nd that, despite the high quality rm's preference for incompatibility, an adapter is always provided in equilibrium… CONTINUE READING
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