[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v7y1998i2p143-182.html
   My bibliography  Save this article

The Vertical Organization of Industry: Systems Competition versus Component Competition

Author

Listed:
  • Joseph Farrell
  • Hunter K. Monroe
  • Garth Saloner
Abstract
We discuss two contrasting styles of vertical organization of complementary activities or components in an industry: systems competition versus component competition. When firms' competencies differ, systems competition is not a perfect substitute for component competition, even with Bertmnd behavior. Costs, prices, industry profits, and the distribution of those profits among firms all differ between the two styles of organization. Moreover, firms' profit incentives do not generally guide them towards the socially efficient form of vertical organization. In duopoly, there is a bias towards open organization (component competition), but with enough firms (three or more, in an exponential example) this bias is reversed.

Suggested Citation

  • Joseph Farrell & Hunter K. Monroe & Garth Saloner, 1998. "The Vertical Organization of Industry: Systems Competition versus Component Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 143-182, June.
    • Handle: RePEc:bla:jemstr:v:7:y:1998:i:2:p:143-182
    DOI: 10.1111/j.1430-9134.1998.00143.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1430-9134.1998.00143.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1430-9134.1998.00143.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Michael A. Einhorn, 1992. "Mix and Match Compatibility with Vertical Product Dimensions," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 535-547, Winter.
    2. Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring.
    3. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chris Forman & Pei-yu Chen, 2003. "Network Effects and Switching Costs in the Market for Routers and Switches," Working Papers 03-03, NET Institute, revised Oct 2003.
    2. Paul Belleflamme & Eric Toulemonde, 2003. "Product differentiation in successive vertical oligopolies," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(3), pages 523-545, August.
    3. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago.
    4. Knittel Christopher R. & Stango Victor, 2008. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, January.
    5. Domenico Buccella & Luciano Fanti & Luca Gori, 2023. "Strategic product compatibility in network industries," Journal of Economics, Springer, vol. 140(2), pages 141-168, October.
    6. Halmenschlager, Christine & Mantovani, Andrea, 2017. "On the private and social desirability of mixed bundling in complementary markets with cost savings," Information Economics and Policy, Elsevier, vol. 39(C), pages 45-59.
    7. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago.
    8. Matutes, Carmen & Regibeau, Pierre, 1996. "A selective review of the economics of standardization. Entry deterrence, technological progress and international competition," European Journal of Political Economy, Elsevier, vol. 12(2), pages 183-209, September.
    9. Ahn Illtae & Yoon Kiho, 2012. "Competitive Mixed Bundling of Vertically Differentiated Products," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-54, November.
    10. Sang‐Hyun Kim & Jong‐Hee Hahn, 2022. "On the profitability of interfirm bundling in oligopolies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 657-673, August.
    11. Chung-Hui Chou, 2020. "Do Consumers Gain or Lose when Network Externalities Become Stronger?," Economics Bulletin, AccessEcon, vol. 40(3), pages 2193-2200.
    12. David Encaoua & Pierre Mohnen & Emmanuel Duguet & Bruno Crépon, 1993. "Diffusion du savoir et incitation à l'innovation : le rôle des accords de coopération en recherche et développement," Économie et Statistique, Programme National Persée, vol. 266(1), pages 47-63.
    13. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    14. Masson Robert T. & Dalkir Serdar & Eisenstadt David, 2014. "A Note on Complementary Goods Mergers between Oligopolists with Market Power: Cournot Effects, Bundling and Antitrust," Review of Law & Economics, De Gruyter, vol. 10(1), pages 59-79, March.
    15. Jong-Hee Hahn & Sang-Hyun Kim, 2012. "Mix-and-Match Compatibility in Asymmetric System Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 311-338, June.
    16. Vamosiu, Adriana, 2018. "Compatibility and bundling of stand and No stand-alone use complements," International Journal of Production Economics, Elsevier, vol. 201(C), pages 62-74.
    17. Anne Perrot, 1995. "Ouverture à la concurrence dans les réseaux : l'approche stratégique de l'économie des réseaux," Économie et Prévision, Programme National Persée, vol. 119(3), pages 59-71.
    18. Tingting He & Dmitri Kuksov & Chakravarthi Narasimhan, 2012. "Intraconnectivity and Interconnectivity: When Value Creation May Reduce Profits," Marketing Science, INFORMS, vol. 31(4), pages 587-602, July.
    19. Guillem Roig, 2020. "Product Compatibility Hinders Pre‐Emptive Advertising," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1663-1688, October.
    20. Frederick R. Warren-Boulton & Kenneth C. Baseman & Glenn A. Woroch, 1994. "The Economics of Intellectual Property Protection for Software: The Proper Role for Copyright," Industrial Organization 9411004, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:7:y:1998:i:2:p:143-182. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.