American Economic Journal: Microeconomics
no. 1, February 2023
We study mix-and-match compatibility choices of firms selling complementary products in a dynamic setting. Contrary to what happens in a static setting where symmetric firms choose compatibility (Matutes and Regibeau 1988), when switching costs are high and firms make price discrimination based on past purchases, symmetric firms choose incompatibility to soften future competition if the discount factor is large, which harms consumers. Interoperability increases consumer surplus at least for high switching costs. Data portability, by reducing switching costs, induces the firms to choose compatibility more often but, given a compatibility regime, benefits consumers only if a nonnegative pricing constraint binds.
Jeon, Doh-Shin, Domenico Menicucci, and Nikrooz Nasr.
"Compatibility Choices, Switching Costs, and Data Portability."
American Economic Journal: Microeconomics,
Consumer Economics: Theory
Firm Behavior: Theory
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Asymmetric and Private Information; Mechanism Design
Information and Internet Services; Computer Software