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R&D in the Presence of Network Externalities: Timing and Compatibility

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  • Eirik Gaard Kristiansen
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    Abstract

    Two rival firms decide on the time of R&D and whether the new products should be compatible. I show that network externalities may induce the firms to introduce new incompatible technologies early, which is socially harmful as the R&D costs increase, and de facto standardization becomes less likely. Compared with the equilibrium outcome, both firms may gain by delaying the introduction of incompatible technologies. By agreeing on common standards before product introduction, entry is delayed and profit may increase. An ex post optimal standardization policy may increase the incentives for early product introduction and consequently be an undesirable policy ex ante.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 29 (1998)
    Issue (Month): 3 (Autumn)
    Pages: 531-547

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    Handle: RePEc:rje:randje:v:29:y:1998:i:autumn:p:531-547

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    Cited by:
    1. Christian Dahl Winther, 2007. "Optimal research effort and product differentiation in network industries," Economics Working Papers 2007-19, School of Economics and Management, University of Aarhus.
    2. Slivko, Olga, 2012. "Direct and indirect subsidies in markets with system goods in the presence of externalities. Preliminary version," Working Papers 2072/211631, Universitat Rovira i Virgili, Department of Economics.
    3. Heli Koski & Tobias Kretschmer, 2005. "Entry, standards and competition : firm strategies and the diffusion of mobile telephony," LSE Research Online Documents on Economics 801, London School of Economics and Political Science, LSE Library.
    4. 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, 03.

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