Compatibility Under Differentiated Duopoly with Network Externalities: A Comment

Chen and Chen (J Ind Compet Trade 11:43−55, <CitationRef CitationID="CR1">2011</CitationRef>) analyze the effects of compatibility under system product Cournot competition with network externalities. They show that a firm’s optimal strategy is to set an incompatible system standard, even though perfect compatibility is socially optimal. In this case, a social dilemma arises. However, their result depends on a specific assumption about the network size. We use the framework of Shy (<CitationRef CitationID="CR3">1995</CitationRef>) to modify this assumption, and hence show that the social dilemma identified by Chen and Chen (J Ind Compet Trade 11:43−55, <CitationRef CitationID="CR1">2011</CitationRef>) does not arise. Copyright Springer Science+Business Media New York 2014