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R&D Investments in Markets with Network Effects

Author

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  • Małgorzata Knauff

    (SGH Warsaw School of Economics)

  • Adam Karbowski

    (SGH Warsaw School of Economics)

Abstract

We consider process R&D investments of firms in markets with network effects and incomplete product compatibility. Our results indicate that network effects increase the firms’ individual investments in R&D. The presence of network effects weakens the positive impact of R&D cooperation on firms’ R&D investments. Further, we show that R&D competition can bring socially optimal level of investment, and this is not possible in markets without network effects. Finally, our results suggest that innovation policy oriented at promoting R&D cooperation between enterprises can be counterproductive in markets with network effects and incomplete product compatibility.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:jincot:v:21:y:2021:i:2:d:10.1007_s10842-021-00357-5
    DOI: 10.1007/s10842-021-00357-5
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    References listed on IDEAS

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    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. 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.

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    More about this item

    Keywords

    R&D investments; Network effects; Product compatibility; Innovation policy;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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