"Mix and Match": Product Compatibility without Network Externalities

Multi-Category Competition and Market Power: A Model of Supermarket Pricing

“…In our setting cross-category effects in variable utility are driven by the cross-category terms Λ kk . 35 By contrast, correlation in the taste for categories is determined by the variance of the overall spending shocks σ 1 ν µ i + σ 2 ν µ it . Observing that consumers tend to demand either a lot of both k and k or little of both is consistent with complementarity as well as correlation in tastes.…”

“…The UK's Expenditure and Food Survey (EFS) includes a variable for gross current household income (variable p352). We estimate household income by regressing this income variable (for years [2003][2004][2005]) on other demographic variables in the ESF that map to those in the TNS survey, namely indicator variables for the number of cars (0, 1, 2, ≥ 3), adults (1, 2, ≥ 3) children (0, 1, 2, ≥ 3), household size (1, 2, ..., ≥ 6), geographic region in Great Britain (10 regions), social class (6 classes as described in Appendix C), tenure of residence (dummies for whether the home is privately owned, privately rented, or public housing, structure of residence (detached house, semi-detached/terrace, and apartment), year, sex of the Household Reference Person (HRP), and age of the HRP (≤24, [25][26][27][28][29][30][31][32][33][34][35][36][37][38][39][40][41][42][43][44][45][46][47][48][49][50][51][52][53][54],55-64,≥ 65) We dropped the top and bottom 1% household incomes to avoid outliers. The R 2 is 0.51 and the number of observations in the regression is 17, 335. yielding 180,000 observations.…”

“…Concretely, after taking the conditional expectation given (x it , ν it ), overall spending, categoryspecific quantities, usage incidence of a given store j for category k, one-stop shopping, and total 35 The cost of visiting multiple stores induces cross-category correlation in demands within a store, but this effect is separately identified since distance and n(c) are observed and excluded from category utility. …”

Technological and organizational designs for realizing economies of substitution

“…This ability to mix and match allows firms to offer a variety of system configurations, and to economize on product development investments (Baldwin and Clark, 1994;Pine, 1993;Sanchez, this issue). At the same time, it offers customers the flexibility to buy components from different firms and create technological systems that are most appropriate for their requirements (Matutes and Regibeau, 1988). In rapidly changing environments, a third system-level attribute-upgradability, or the ease with which system performance can be enhanced over time-also becomes important.…”

Rational incompatibility with international product standards

“…Meanwhile, trade treaties (e.g., NAFTA) increasingly incorporate language designed to restrict nations' abilities to introduce technical barriers to trade (Sykes 1995, Wilson 1995 The literature on networks explains incompatibility as arising either from consumer heterogeneity that gives social value to variety, from stochastic technology quality that creates disincentives to betting everything on one standard of uncertain ultimate quality, or from firm asymmetries that'cause one firm to be confident it will win a contest of competing standards , Katz and Shapiro 1986, Matutes and Regibeau 1988, Katz and Shapiro 1994.…”