Compatibility, network effects, and collusion

- A market with network effects in which firms collude on prices is considered.
- Full collusion is easier to sustain under compatibility.
- Incentives to introduce compatibility under collusion may be higher or lower than under competition.
- Intertemporal preferences can have an ambiguous effect on firms' compatibility decisions.

I consider a market with network effects in which firms collude on prices. Depending on the fixed costs for achieving compatibility, there may be a non-monotone relationship between firms' decisions to make their products compatible and their intertemporal preferences.