The chapter discusses the economics of systems competition and network effects, focusing on how these factors influence market outcomes. Systems are defined as collections of components that work together to provide a service, such as nuts and bolts, home audio or video components, automobiles and repair parts, fax machines and communication protocols, ATMs and cards, camera bodies and lenses, and computer hardware and software. These systems often exhibit strong complementarity, where the value of one component increases with the presence of other components. The chapter highlights three key issues in systems competition: expectations, coordination, and compatibility. Expectations refer to how buyers form expectations about the availability, price, and quality of components over time. Coordination involves the challenges firms face in aligning investments and ensuring compatibility among components. Compatibility refers to the ability of components from one system to work with those from another system. The literature on systems competition examines how these factors affect technology adoption, product selection, and compatibility decisions. It explores the dynamics of network effects, where the value of a system increases with the number of users, leading to positive feedback and multiple equilibria. The chapter also discusses market responses to network effects, including the role of property rights, integration, and strategic behaviors such as penetration pricing and vertical integration. In the context of incompatible systems, the chapter analyzes the tendency for one system to "tip" to dominance, often referred to as "tipping," and the factors that sustain multiple networks. It also discusses the impact of network effects on innovation, suggesting that firms may be less incentivized to innovate if they are locked into a dominant system. Finally, the chapter examines the social benefits and costs of compatibility, particularly between rival systems and successive generations of similar technology, and the conditions under which compatibility is socially desirable.The chapter discusses the economics of systems competition and network effects, focusing on how these factors influence market outcomes. Systems are defined as collections of components that work together to provide a service, such as nuts and bolts, home audio or video components, automobiles and repair parts, fax machines and communication protocols, ATMs and cards, camera bodies and lenses, and computer hardware and software. These systems often exhibit strong complementarity, where the value of one component increases with the presence of other components. The chapter highlights three key issues in systems competition: expectations, coordination, and compatibility. Expectations refer to how buyers form expectations about the availability, price, and quality of components over time. Coordination involves the challenges firms face in aligning investments and ensuring compatibility among components. Compatibility refers to the ability of components from one system to work with those from another system. The literature on systems competition examines how these factors affect technology adoption, product selection, and compatibility decisions. It explores the dynamics of network effects, where the value of a system increases with the number of users, leading to positive feedback and multiple equilibria. The chapter also discusses market responses to network effects, including the role of property rights, integration, and strategic behaviors such as penetration pricing and vertical integration. In the context of incompatible systems, the chapter analyzes the tendency for one system to "tip" to dominance, often referred to as "tipping," and the factors that sustain multiple networks. It also discusses the impact of network effects on innovation, suggesting that firms may be less incentivized to innovate if they are locked into a dominant system. Finally, the chapter examines the social benefits and costs of compatibility, particularly between rival systems and successive generations of similar technology, and the conditions under which compatibility is socially desirable.