Standardization Across Markets and Entry

Carmen Matutes, and Pierre Regibeau

1/01/2005
(Original Publish Date: 1989)

In many industries, consumers combine several components to build their own system. This paper analyzes the incentives to standardize among firms selling a single component to consumers who have already acquired the rest of the system. By selling a component that can work with different systems, a firm credibly commits itself to charging the same price in all the submarkets. It is shown that this can be an optimal strategy for an incumbent who wants to restrict the scope of entry.