Compatibility, Interoperability, and Market Power in Upgrade Markets

Posted: 16 Apr 2010 Last revised: 15 Aug 2012

See all articles by James J. Anton

James J. Anton

Duke University - Fuqua School of Business; Duke University - Department of Economics; Duke Innovation & Entrepreneurship Initiative

Gary Biglaiser

University of North Carolina

Date Written: January 6, 2010

Abstract

We examine the market power of a seller who repeatedly offers upgraded versions of a product. In the case of pure monopoly, the seller also controls compatibility across versions. In the case of an entrant who offers an upgrade, the incumbent seller also controls subsequent interoperability across versions. We argue that control of compatibility and interoperability does not allow an incumbent seller to charge a price premium relative to when such control is absent and, consequently, neither is a necessary source of market power.

Keywords: Upgrade markets, Compatibility, Standards, Interoperability, Innovation

JEL Classification: D42, L15, O32

Suggested Citation

Anton, James J. and Biglaiser, Gary, Compatibility, Interoperability, and Market Power in Upgrade Markets (January 6, 2010). Economics of Innovation and New Technology, Forthcoming , Available at SSRN: https://ssrn.com/abstract=1589706 or http://dx.doi.org/10.2139/ssrn.1589706

James J. Anton (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0097
United States
919-660-7754 (Phone)
919-684-2818 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
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Durham, NC 27708-0204
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Duke Innovation & Entrepreneurship Initiative ( email )

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Gary Biglaiser

University of North Carolina ( email )

Chapel Hill, NC 27599
United States
919-966-4884 (Phone)
919-966-4986 (Fax)

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