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Licensing, software synergy, and indirect network externalities

Author: Kende, Michael INSEAD Area: Economics and Political Science Series: Working Paper ; 95/46/EPS Publisher: Fontainebleau : INSEAD, 1995.Language: EnglishDescription: 18 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper examines the effectiveness of two common strategies used by a monopoly seller of the hardware component system. The first strategy consists of licensing the hardware technology to third-party firms, thus encouraging software firms to develop products for the licensed standard. the second strategy is for the hardware manufacturer to integrate into software production and to unilaterally commit to a high level of compatible software. Both strategies not only increase profits from hardware sales, but also increase consumer surplus by lowering hardware prices and increasing software availability
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This paper examines the effectiveness of two common strategies used by a monopoly seller of the hardware component system. The first strategy consists of licensing the hardware technology to third-party firms, thus encouraging software firms to develop products for the licensed standard. the second strategy is for the hardware manufacturer to integrate into software production and to unilaterally commit to a high level of compatible software. Both strategies not only increase profits from hardware sales, but also increase consumer surplus by lowering hardware prices and increasing software availability

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