The timing of product introduction and the credibility of compatibility decisions

We analyze the compatibility choices of two firms which must also decide when to introduce their goods in a market characterized by network externalities. We show that the firms' incentives to achieve compatibility depend crucially on the time at which the degree of compatibility must be chosen. This raises the possibility of time inconsistencies, as a firm which initially favors compatibility might prefer incompatibility once one of the two goods has been introduced. We also determine the socially optimal standardization policies, both in a domestic and in an international context.