Partially Compatible Brands and Consumer Welfare

We propose an environment for modelling an industry producing differentiated brands which are partially compatible with each other. We show that when each brand is supported by its brand specific supporting services, a firm may increase the variety of its supporting services and its market share by reducing the degree of compatibility of its machine with other machines' supporting services. However, when a firm is not supported by its brand specific supporting services, it can only gain additional market share when it increases the compatibility of its machine. We also show that consumers benefit when machines become more compatible. However, consumers may become worse off and producers become better off when the products become one hundred percent compatible