Network Externalities and the Analysis of Firms' Products Compatibility Decision

The purpose of the present paper is to discuss what if the dominant firm cannot deter entry but can only decide whether it allows compatibility to the affiliate firms or not in a market with network externalities.Our result shows that,under the assumption that the fulfilled expectation of sales is stochastic,the dominant firm will share the technology with other firms and take compatibility strategy when the strength of network externality is weak.On the contrary,the dominant firm has no any motivations to open the technology when the strength of network externality is strong and then disallow compatibility.