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R&D in Markets with Network Externalities

Author

Listed:
  • Désiré Vencatachellum

    (HEC-Montreal, Université de Montréal)

  • Caroline Boivin

    (University of Sherbrooke)

Abstract

We study how network externalities affect research and development (R&D) investments by a non-cooperative duopoly that offers compatible products. We find that multiple R&D equilibria may arise when network externalities are non linear in the number of consumers. The lowest R&D equilibrium corresponds to the case where network externalities are absent. However, even in the presence of network externalities, firms may be trapped in a low-R&D equilibrium where output, and therefore consumers' valuation of the network size, is low. We derive the conditions under which the highest-R&D equilibrium Pareto dominates.

Suggested Citation

  • Désiré Vencatachellum & Caroline Boivin, 2002. "R&D in Markets with Network Externalities," Economics Bulletin, AccessEcon, vol. 12(9), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-02l00002
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    Citations

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    Cited by:

    1. Xing, Mingqing, 2014. "On the optimal choices of R&D risk in a market with network externalities," Economic Modelling, Elsevier, vol. 38(C), pages 71-74.
    2. Shrivastav, Sumit, 2021. "Network compatibility, intensity of competition and process R&D: A generalization," Mathematical Social Sciences, Elsevier, vol. 109(C), pages 152-163.
    3. Naskar, Mili & Pal, Rupayan, 2020. "Network externalities and process R&D: A Cournot–Bertrand comparison," Mathematical Social Sciences, Elsevier, vol. 103(C), pages 51-58.
    4. Tsuyoshi Toshimitsu, 2021. "Note on Excess Capacity in a Monopoly Market with Network Externalities," Journal of Industry, Competition and Trade, Springer, vol. 21(3), pages 411-422, September.
    5. Yi, Yuyin & Yang, Haishen, 2017. "An evolutionary stable strategy for retailers selling complementary goods subject to indirect network externalities," Economic Modelling, Elsevier, vol. 62(C), pages 184-193.
    6. 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.

    More about this item

    Keywords

    Network Externalities;

    JEL classification:

    • L0 - Industrial Organization - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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