STANDARDS COMPETITION AND COOPERATION AT THE COMPUTER HARDWARE AND SOFTWARE MARKET

The paper is motivated by competition and cooperation of hardware (Intel, AMD), operating systems (Microsoft Windows and Linux), and software applications (Microsoft Office and OpenOffice). The objective of the paper is to show the conflicts in pricing and the frequency of new releases which is contrary to the general view of well aligned incentives of complementary network products. The research of competing complementary products have started with the classic work of Cournot published in 1838. The usual modern approach in such studies is to consider network effects in complements competition as one-sided. This paper presents some extensions and modifications of the dynamic model of Windows/Intel competition presented by Cassadesus-Masanell and Yoffie in 2007 who have introduced the two-sided network effects approach into research of competing complements. In this model the two-stage game is analyzed when at the first stage the competitors invest into R&D, and at the second stage they set prices. Cassadeus-Masanell and Ghemawat assumed that in each period of time a new ―cohort‖ of potential users enters the market. We here measure the market size not in ―cohorts‖ but in ―users‖ assuming that the market is growing and in each period of time the fixed number of potential users enters the market. Another extension to Cassadesus-Masanell and Ghemawat‘s model brings into consideration competitive interactions between Microsoft Windows and Linux, Intel and AMD, Microsoft Office and OpenOffice. The mechanism of the conflict is investigated when Intel sets prices too high and supports Linux team, the major competitor of Microsoft, while Microsoft releases new versions too late and backs AMD, Intel‘s main competitor. The investigation of hardware and software opposition provided in this paper is important for revealing the nature and mechanisms of competition at the knowledge markets. The model could be used as an instrument for decision-making at the IT market and as a basis for future research. The assumption of linear market growth and particular attention given simultaneously to a conflicts between hardware and software manufacturers, competing software vendors, and competing hardware manufacturers form the basis of the model's originality.