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Software Provision and the Impact of Market Integration

Both deeper market integration and advances in digital technology have driven particularly large decreases in the costs of intermarket software provision. This study first explains the mechanism of how trade costs influence the software provision decisions of software firms. Then the transformation of production/trade patterns is investigated given gradually decreasing trade costs for software products. It is shown that if two incompatible types of hardware exist, deeper market integration may reduce the variety of hardware technologies. It is also shown that, if the variety of hardware technologies is reduced by deeper integration, some consumers are made worse off.