This paper analyzes the effects of one-way compatibility on technology adoption in a market that is characterized by a free-entry condition on the software side. We show that hardware-backward compatibility increases a new-generation hardware firm's profit; the effects of software-backward compatibility on the hardware firm's profits depend on the distribution of consumer types.
Bibliographical noteFunding Information:
I am grateful to Adam Brandenburger, Drew Fudenberg, Rena Henderson, Doh-shin Jeon, Sonku Kim, Eric Maskin, Tomas Sjostrom, Abe Wickelgren, to participants in the conference at Toulouse (Economics of the Software and Internet Industries), and to participants in the Harvard Industrial Organization seminar. I also thank Neil Gandal and Patrick Rey for helpful comments and suggestions. This paper gets financial support from Sogang University, Grant No. 200701017.01. All errors are my own.
Copyright 2008 Elsevier B.V., All rights reserved.
- Backward compatibility
- Network effects
- One-way compatibility
ASJC Scopus subject areas
- Economics and Econometrics
- Management, Monitoring, Policy and Law