Coase-Sandor Working Paper Series in Law and Economics

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This paper considers an externality that affects a broad range of markets, specifically markets where one set of firms sells some platform technology like a computer, video game console, or operating system, while another possibly overlapping set of firms sells peripherals compatible with that platform, for example computer software or video game cartridges. The externality causes certain peripheral sellers to charge prices that are unprofitably high. That is, these firms could earn greater profits if only they could coordinate to charge lower prices. In many markets, such coordination is possible; firms can contract, for example, or integrate. In markets based on relatively new platform technologies, however, coordination will typically be difficult. The paper explains why, and argues that intellectual property law can and should facilitate price coordination in these "emerging technology" settings.



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