The Effects of Compatibility on Buyer Behavior in the Market for Computer Networking Equipment

This paper examines the importance of compatibility on buyer behavior in the market for computer networking equipment over the period 1996-1998. One finding is that firm establishments are more likely to purchase networking gear from an incumbent vendor. Among some classes of networking equipment, incumbency affects vendor choice both when it occurs at the same establishment and/or at other establishments within the same firm. Another finding is that compatibility across different product lines within the same vendor also influences vendor choice. These theses are explored in data on purchases of computer networking equipment utilizing open standards such as the Ethernet networking protocol, and represent the first econometric measurement of compatibility effects within products utilizing open standards. These findings show that there are strong economic incentives to offer broad product lines, and provide one potential explanation for high concentration levels in the market for computer networking equipment.