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Strategic R&D And Network Compatibility

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  • Pekka Saaskilahti

Abstract

We analyse the effects of network externalities in strategic R&D competition. We present a model of two firms competing with R&D investments and prices in a differentiated consumer market. Buyers form firm-specific networks which can be compatible. A high degree of compatibility and large spillovers moderate price competition due to weak strategic value of firm-specific networks and R&D investments, respectively. Asymmetry in product qualities brings out network effects that cancel out in conventional symmetric settings. The lower quality firm increases R&D and decreases its price as spillovers or network compatibility is increased. This happens when R&D and firm-specific network size have high strategic value.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Economics of Innovation and New Technology.

Volume (Year): 15 (2006)
Issue (Month): 8 ()
Pages: 711-733

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Handle: RePEc:taf:ecinnt:v:15:y:2006:i:8:p:711-733

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Related research

Keywords: R&D; Spillovers; Networks; Compatibility;

References

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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.

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