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Entrepreneurial Innovations in Network Industries

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Abstract

In this paper, we study entrepreneurial innovations in an industry characterized by network effects. We show that the presence of network externalities tends to make the entrepreneur prefer sale to entry. Moreover, we also show that the incentive to innovate for entry decreases when network effects become stronger, whereas there is an increase in the incentive for innovation for sale. Moreover, we show that increasing the degree of industry-wide standardization furthers the goal of increasing entry by entrepreneurs. However, this may come at the cost of reducing the research intensity by reducing the bidding competition among incumbents over the innovations of entrepreneurs.

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File URL: http://www.netinst.org/Norback_Persson_Tag_08-02.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 08-02.

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Length: 29 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:net:wpaper:0802

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Web page: http://www.NETinst.org/

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Keywords: Entrepreneurship; Entry; Compatibility; Innovation; Network Effects; Standardization;

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  17. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
  18. Joshua S. Gans & David H. Hsu & Scott Stern, 2000. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," NBER Working Papers 7851, National Bureau of Economic Research, Inc.
  19. Choi, Jay Pil, 1996. "Standardization and experimentation: Ex ante vs. ex post standardization," European Journal of Political Economy, Elsevier, vol. 12(2), pages 273-290, September.
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  22. Joshua S. Cans & Scott Stern, 2000. "Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 485-511, December.
  23. Choi, J.P., 1994. "Do Converters Facilitate the Transition to a New Incompatible Technology?: A Dynamic Analysis of Converters," Discussion Papers 1994_04, Columbia University, Department of Economics.
  24. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
  25. Gerard Llobet & Michael Manove, 2006. "Network Size and Network Capture," Boston University - Department of Economics - Working Papers Series WP2006-007, Boston University - Department of Economics.
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