Coordinating Failures in Product Selection in Monopolistic Competition Models of Innovation

Innovation and Economic Growth, Interoperability, Competition Policy and Antitrust and Standards

Article Snapshot

Author(s)

Kiminori Matsuyama

Source

Toulouse Network for Information Technology, September 2006

Summary

This paper asks what economic factors affect which innovations are made.

Policy Relevance

Some economic factors can lead developers to choose the wrong mix of products. It might make sense for policymakers to pay more attention to this problem instead of the problem of monopoly, which is less harmful.

Main Points

  • Software products are designed to work with different networks, operating systems, or other platforms. A platform’s popularity affects both how much users benefit from joining it, and the owner’s profits.

  • A key question is how we know that software developers will offer the set of products that will best serve consumers.

  • What products are developed and how well they serve consumers depends on the context.
    • Products that rely on the same technological standard or use the same platform complement each other in some circumstances, but in others they compete.
    • Different networks, standards, and platforms also compete.

  • Sometimes, depending on the type of competition, developers might choose the wrong mix of products. This can harm consumers much more than monopoly.

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