Compatibility Choices under Switching Costs

e study firms’ compatibility choices in the presence of consumers’ switching costs. We analyze both a model of once-and-for-all compatibility choices and that of dynamic choices. Contrary to what happens in a static setting in which firms embrace compatibility to soften the current competition (Matutes and Régibeau, 1988), when consumer lock-in arises due to a significant switching cost, firms make their products incompatible in order to soften future competition, regardless of the model we consider. This reduces consumer surplus and social welfare