This paper studies the welfare effect of product incompatibility in complementary goods markets. Complementary goods are often incompatible across brands. Incompatibility imposes a choice constraint and increases consumers' costs of switching or upgrading. Firms take advantage of incompatibility...

We set up a model to analyze the effects of mergers between sellers of complementary components where firms invest in compatibility and can engage in bundling. We consider the impact of merger on prices, investment and consumer surplus. We also analyse when the merged firm may have an incentive...