Innovation of Network Goods: A Non-Innovating Firm Will Gain
AbstractWe consider duopolists innovating and producing a good subject to network externalities, so that the reservation price of a consumer increases with aggregate consumption. The post-innovation network consists of two compatible sub-networks, with increased network valuation of the new product. When the non-innovating firm enjoys a larger profit than when neither firm innovates, free-riding on the winner’s network as a public good arises. With such a network spillover, duopolists may underinvest in innovation.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 692.
Date of creation: 2002
Date of revision:
network goods; free riding; innovation; telecommunications;
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