Analysis About The Relation Between Network Externality, Compatibility And Industry's Market Structure

The compatibility demand and the interconnection problem which are brought by the externalities character of the network industry are the focus of network industry research. This article starts from the characters of the industry structure. And it discusses about the compatibility between complements, substitutes and the producers' compatibility strategy choices under different structures such as monopoly, oligopoly and monopolistic competition market. It sets the instant message market of our country as example, analyses the consumer demands about interconnection and the reasons of incompatibility between the interconnection products and hope to give some advices about the foreground of our country's instant message industry.Whether producers adopt compatibility strategy decides on two effections: one is competition effection, the other is network effection. If the network effection is stronger enough to counteract the competition effection, the producer will adopt the compatibility strategy. Usually, the both parts of the cooperation can earn the benefit from the compatibility between the compliments. And it is a Win-Win choice, therefore it can be realize by the market operation. But it is difficult to coming true for the compatibility between substitute producers, especially when the position of the producers is unfair. And in the different market structures, the comparative stronger between competition and monopoly factor and the position of the producers decides the compatibility strategy.In this article, based on the dynamic competition model of Katz and Shapiro, I construct a two phases' game dynamic model and analyze the compatibility strategy of two magnates: Tecent A and China-Mobile. It was found that in the competition equilibrium the market power deciding factors is network externality, transfer cost and diversity cost. Therefore the three factors mentioned above are the key factors of deciding Tecent A and China-Mobile's compatibility strategy.At the same time, compatibility weakens the diversity demand of the produces and can't satisfy the diversity demand of the consumers. In general, if interconnection become the final result of all instant message producer, it will improve the whole welfare of the consumers. But the monopoly will reduce the demand elasticity, and not accord with the benefit of the consumers.