Apple vs Windows Sirius XM introduced a player that works with both standards

Apple vs windows sirius xm introduced a player that

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Apple vs. Windows Sirius XM introduced a player that works with both standards in early 2009 Apple can design its App store software development kit (SDK) such that it is either easy or difficult to port software to/from Android (and same for Android)
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32 Compatibility Suppose that firm earns π d as duopolist with compatible standards and π m as a monopolist Lose L from fighting the war Consider the following schematic... standards war not compatible compatible π d Firm 1 win lose -L π m -L
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33 Compatibility What will the firm choose? All depends on how costly the standards war is to fight & how monopoly and duopoly payoffs compare Suppose standards war is like an auction: firms choose marketing dollars and whichever chooses the most dollars wins Then the advertising auction will compete away all expected profits (and potentially more!). Firms clearly prefer compatibility Suppose standards war has no cost (L=0) and the winning firm is chosen with 50% probability (e.g. a standard-setting agent will choose) Prefer incompatibility if π m >2 π d , which often holds
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34 Summary: Network Effects and Standards Wars Single technologies (last week) Network externalities = fundamental coordination problem Firm actions that shape expectations & subsidize adoption are critical Competing technologies (this week) Network markets are frequently winner-take-all Lock-in phenomenon means big payoffs to winner; best technology does not always win War of attrition can be highly costly, especially because costs are sunk Choosing incompatibility is high-risk-high-return
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  • Fall '15
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