Software-platform integration, incompatibility, and system-user switching

Abstract

This article constructs a game-theoretic model to explore the dynamics of incompatibility and integration in a market for specific system products-base goods, such as platforms, and supplement goods, such as software. A base-supplement system exhibits a unique context of product complementarity. A supplement goods producer may choose to make its product incompatible with certain base products, with the goal of mitigating competition with other supplements or foreclosing the user market for a target base. This article identifies the conditions under which different strategies with regard to compatibility and integration may be employed in equilibrium. The welfare consequences of different strategies are also examined.