Editing Network effect (section)

== Compatibility and incompatibility ==
Product compatibility is closely related to network externalities in company's competition, which refers to two systems that can be operated together without changing. Compatible products are characterized by better matching with customers, so they can enjoy all the benefits of the network without having to purchase products from the same company. However, not only products of compatibility will intensify competition between companies, this will make users who had purchased products lose their advantages, but also proprietary networks may raise the industry entry standards. Compared to large companies with better reputation or strength, weaker companies or small networks will more inclined to choose compatible products.<ref>{{Cite journal|last1=Katz|first1=Michael|last2=Shapiro|first2=Carl|date=1985-06-01|title=Network Externalities, Competition, and Compatibility|journal=The American Economic Review|volume=75|issue=3|pages=424–440|issn=0002-8282|eissn=1944-7981}}</ref>

Besides, the compatibility of products is conducive to the company's increase in market share. For example, the [[Microsoft Windows|Windows]] system is famous for its operating compatibility, thereby satisfying consumers' diversification of other applications. As the supplier of Windows systems, [[Microsoft]] benefits from indirect network effects, which cause the growing of the company's market share.<ref>{{Cite journal|last1=Wu|first1=Jing|last2=Li|first2=He|last3=Lin|first3=Zhangxi|last4=Zheng|first4=Haichao|date=September 2017|title=Competition in wearable device market: the effect of network externality and product compatibility|url=http://link.springer.com/10.1007/s10660-016-9227-6|journal=Electronic Commerce Research|language=en|volume=17|issue=3|pages=335–359|doi=10.1007/s10660-016-9227-6|s2cid=45293373|issn=1389-5753}}</ref>

Incompatibility is the opposite of compatibility. Because incompatibility of products will aggravate [[market segmentation]] and reduce efficiency, and also harm consumer interests and enhance competition. The result of the competition between incompatible networks depends on the complete sequential of adoption and the early preferences of the adopters.<ref>{{Cite journal|last1=Farrell|first1=Joseph|last2=Saloner|first2=Garth|date=1986|title=Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation|url=https://www.jstor.org/stable/1816461|journal=The American Economic Review|volume=76|issue=5|pages=940–955|jstor=1816461|issn=0002-8282}}</ref> Effective competition determines the market share of companies, which is historically important.<ref>{{Citation|last1=Farrell|first1=Joseph|title=Chapter 31 Coordination and Lock-In: Competition with Switching Costs and Network Effects|date=2007|url=https://linkinghub.elsevier.com/retrieve/pii/S1573448X06030317|work=Handbook of Industrial Organization|volume=3|pages=1967–2072|publisher=Elsevier|language=en|doi=10.1016/s1573-448x(06)03031-7|isbn=978-0-444-82435-6|access-date=2020-10-31|last2=Klemperer|first2=Paul|archive-date=2020-08-09|archive-url=https://web.archive.org/web/20200809064451/https://linkinghub.elsevier.com/retrieve/pii/S1573448X06030317|url-status=live}}</ref> Since the installed base can directly bring more network profit and increase the consumers' expectations, which will have a positive impact on the smooth implementation of subsequent network effects.