IDEAS home Printed from https://ideas.repec.org/a/bla/manchs/v90y2022i3p354-384.html
   My bibliography  Save this article

R&D rivalry with endogenous compatibility

Author

Listed:
  • John S. Heywood
  • Zerong Wang
  • Guangliang Ye

Abstract

A classic R&D rivalry is compared to R&D cooperation while embedded in a model of endogenous network compatibility. We show that complete incompatibility is more likely to occur with cooperative R&D. Complete incompatibility increases the advantage in R&D and profitability of the incumbent over the entrant. In our initial illustration, cooperation in network industries with endogenous compatibility generates no higher (and often lower) welfare than in non‐network industries. In our generalization, cooperation in network industries generates welfare loss for a wider range of R&D spillovers. This suggests that R&D cooperation should receive stricter policy scrutiny in network industries with endogenous compatibility.

Suggested Citation

  • John S. Heywood & Zerong Wang & Guangliang Ye, 2022. "R&D rivalry with endogenous compatibility," Manchester School, University of Manchester, vol. 90(3), pages 354-384, June.
    • Handle: RePEc:bla:manchs:v:90:y:2022:i:3:p:354-384
    DOI: 10.1111/manc.12399
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/manc.12399
    Download Restriction: no
    File URL: https://libkey.io/10.1111/manc.12399?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jacques Crémer & Patrick Rey & Jean Tirole, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-472, December.
    2. Farrell, Joseph & Saloner, Garth, 1986. "Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation," American Economic Review, American Economic Association, vol. 76(5), pages 940-955, December.
    3. Norbäck, Pehr-Johan & Persson, Lars & Tå̊g, Joacim, 2014. "Acquisitions, entry, and innovation in oligopolistic network industries," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 1-12.
    4. Tsuyoshi Toshimitsu, 2018. "Strategic Compatibility Choice, Network Alliance, and Welfare," Journal of Industry, Competition and Trade, Springer, vol. 18(2), pages 245-252, June.
    5. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2009. "Avoiding market dominance: product compatibility in markets with network effects," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 455-485, September.
    6. Kristiansen, Eirik Gaard, 1996. "R&D in markets with network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 769-784, October.
    7. Małgorzata Knauff & Adam Karbowski, 2021. "R&D Investments in Markets with Network Effects," Journal of Industry, Competition and Trade, Springer, vol. 21(2), pages 225-250, June.
    8. Neil Gandal, 2002. "Compatibility, Standardization, and Network Effects: Some Policy Implications," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 18(1), pages 80-91, Spring.
    9. Jeong-Yoo Kim, 2000. "Product Compatibility and Technological Innovation," International Economic Journal, Taylor & Francis Journals, vol. 14(3), pages 87-100.
    10. Maruyama, Masayoshi & Zennyo, Yusuke, 2017. "Process innovation, application compatibility, and welfare," Information Economics and Policy, Elsevier, vol. 40(C), pages 1-12.
    11. Filomena Garcia & Cecilia Vergari, 2016. "Revealing Incentives for Compatibility Provision in Vertically Differentiated Network Industries," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 720-749, September.
    12. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    13. Porchiung Ben Chou & Cesar Bandera, 2020. "An Oligopoly Game with Network Effects for Compatible and Incompatible Standards: As Applied to Short and Multimedia Message Services," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(1), pages 27-46, June.
    14. Tsuyoshi Toshimitsu, 2014. "Compatibility Under Differentiated Duopoly with Network Externalities: A Comment," Journal of Industry, Competition and Trade, Springer, vol. 14(3), pages 331-335, September.
    15. Chen, Jiawei, 2018. "Switching costs and network compatibility," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 1-30.
    16. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
    17. Ho-Chyuan Chen & Chien-Chen Chen, 2011. "Compatibility Under Differentiated Duopoly with Network Externalities," Journal of Industry, Competition and Trade, Springer, vol. 11(1), pages 43-55, March.
    18. Michael L. Katz & Janusz A. Ordover, 1990. "R&D Cooperation and Competition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 137-203.
    19. Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-472, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tsuyoshi Toshimitsu, 2023. "The Impact of Compatibility on Incentives to Innovate in a Network Goods Market: A Duopoly Case," Discussion Paper Series 253, School of Economics, Kwansei Gakuin University.
    2. Zhenjun Yan & Xinyan Wu & Jing Li & Bingqing Liang, 2022. "Competition and Heterogeneous Innovation Qualities: Evidence from a Natural Experiment," Sustainability, MDPI, vol. 14(13), pages 1-21, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tsuyoshi Toshimitsu, 2018. "Strategic Compatibility Choice, Network Alliance, and Welfare," Journal of Industry, Competition and Trade, Springer, vol. 18(2), pages 245-252, June.
    2. Małgorzata Knauff & Adam Karbowski, 2021. "R&D Investments in Markets with Network Effects," Journal of Industry, Competition and Trade, Springer, vol. 21(2), pages 225-250, June.
    3. Ron Adner & Jianqing Chen & Feng Zhu, 2020. "Frenemies in Platform Markets: Heterogeneous Profit Foci as Drivers of Compatibility Decisions," Management Science, INFORMS, vol. 66(6), pages 2432-2451, June.
    4. Tsuyoshi Toshimitsu, 2023. "The Impact of Compatibility on Incentives to Innovate in a Network Goods Market: A Duopoly Case," Discussion Paper Series 253, School of Economics, Kwansei Gakuin University.
    5. Feng Zhu, 2008. "Ad-sponsored Business Models and Compatibility Incentives of Social Networks," Working Papers 08-20, NET Institute, revised Sep 2008.
    6. María Fernanda Viecens, 2009. "Compatibility with Firm Dominance," Working Papers 2009-12, FEDEA.
    7. Domenico Buccella & Luciano Fanti & Luca Gori, 2023. "Strategic product compatibility in network industries," Journal of Economics, Springer, vol. 140(2), pages 141-168, October.
    8. Persson, Lars & Norbäck, Pehr-Johan & Tåg, Joacim, 2013. "Acquisitions, Entry, and Innovation in Network Industries," CEPR Discussion Papers 9585, C.E.P.R. Discussion Papers.
    9. Norbäck, Pehr-Johan & Persson, Lars & Tå̊g, Joacim, 2014. "Acquisitions, entry, and innovation in oligopolistic network industries," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 1-12.
    10. Viecens María Fernanda, 2011. "Compatibility with Firm Dominance," Review of Network Economics, De Gruyter, vol. 10(4), pages 1-27, December.
    11. Oz Shy, 2011. "A Short Survey of Network Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 119-149, March.
    12. P. Dogan, "undated". "Vertical Networks, Integration, and Connectivity," Working Paper 33644, Harvard University OpenScholar.
    13. Rabah Amir & Igor Evstigneev & Adriana Gama, 2021. "Oligopoly with network effects: firm-specific versus single network," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(3), pages 1203-1230, April.
    14. Heli Koski & Tobias Kretschmer, 2004. "Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications," Journal of Industry, Competition and Trade, Springer, vol. 4(1), pages 5-31, March.
    15. Athanasopoulos, Thanos, 2014. "Compatibility, Intellectual Property,Innovation and Welfare in Durable Goods Markets with Network Effects," The Warwick Economics Research Paper Series (TWERPS) 1043, University of Warwick, Department of Economics.
    16. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    17. Adriana Gama & Rim Lahmandi-Ayed & Ana Elisa Pereira, 2020. "Entry and mergers in oligopoly with firm-specific network effects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(4), pages 1139-1164, November.
    18. Athanasopoulos, Thanos, 2015. "Compatibility, Intellectual Property, Innovation and Welfare in Durable Goods Markets with Network E§ects," Economic Research Papers 270241, University of Warwick - Department of Economics.
    19. Jahn, Eric & Prüfer, Jens, 2008. "Interconnection and competition among asymmetric networks in the Internet backbone market," Information Economics and Policy, Elsevier, vol. 20(3), pages 243-256, September.
    20. Joël Cariolle & Maëlan le Goff, 2023. "Spatial Internet Spillovers in Manufacturing," Journal of Development Studies, Taylor & Francis Journals, vol. 59(8), pages 1163-1186, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:manchs:v:90:y:2022:i:3:p:354-384. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/semanuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.