Compatibility, Interoperability, and Market Power in Upgrade Markets
Posted: 16 Apr 2010 Last revised: 15 Aug 2012
Date Written: January 6, 2010
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: Suggested Citation