ABSTRACT
The intent of this chapter is to explain, largely through case-based analysis, how a company in a network economy can improve its product and actually lose market share. The model assumes that one of two firms is given the option to make its product potentially compatible with its competitor’s product. Therefore, consumers who purchase the potentially compatible product have the option to purchase compatibility. If a consumer purchases compatibility, she earns the benefits from both firms’ products. The products are differentiated along a linear model, and the interpretation of the line is that consumers located to the right of a given point between the products can be thought of as businesses who may purchase computers while consumers located to the left of the point can be thought of as schools or homes. In addition, the left endpoint can be interpreted as a finite market. For instance, Apple personal computers already sell in both the home and school markets. Therefore, if Apple is to gain market share, they may need to do so in the business world.
