INTERGENERATIONAL PRODUCT COMPATIBILITY AND PRICE COMPETITION

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Advances in Applied Microeconomics

ISSN: 0278-0984
Series editor(s): Professor Michael Baye, Professor John Maxwell

Subject Area: Economics

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Document Information:
Title:	INTERGENERATIONAL PRODUCT COMPATIBILITY AND PRICE COMPETITION
Author(s):	Dong Chen
Volume:	12 Editor(s): Michael R. Baye ISBN: 978-0-76231-081-4 eISBN: 978-1-84950-254-2
Citation:	Dong Chen (2003), INTERGENERATIONAL PRODUCT COMPATIBILITY AND PRICE COMPETITION, in Michael R. Baye (ed.) Organizing the New Industrial Economy (Advances in Applied Microeconomics, Volume 12), Emerald Group Publishing Limited, pp.237-266
DOI:	10.1016/S0278-0984(03)12009-3 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Chapter Item
Abstract:	This paper considers firms’ incentive to preserve compatibility between product generations in a duopoly setting. A firm may or may not maintain backward compatibility depending on its first period market share. Firms’ compatibility choices consequently will affect their pricing behaviors. Specifically, it is shown that under certain conditions both firms will preserve compatibility and act as local monopolist in the second period. Hence, backward compatibility becomes a tool for firms to relax second period price competition.