We 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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 692.
Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D62 - Microeconomics - - Welfare Economics - - - Externalities L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Nicholas Economides, 1995.
"The Economics of Networks,"
Working Papers
94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
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