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Entrepreneurial Innovations in Network Industries

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Author Info
Pehr-Johan Norbäck () (Research Institute of Industrial Economics (IFN))
Lars Persson () (Research Institute of Industrial Economics (IFN))
Joacim Tåg () (Research Institute of Industrial Economics (IFN))

Additional information is available for the following registered author(s):

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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Publisher 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: Sep 2008
Handle: RePEc:net:wpaper:0802

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

For technical questions regarding this item, or to correct its listing, contact: (Nicholas Economides).

Related research
Keywords: Entrepreneurship; Entry; Compatibility; Innovation; Network Effects; Standardization.;

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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References listed on IDEAS
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  1. Glazer, Amihai & Kanniainen, Vesa & Mustonen, Mikko, 2002. "Innovation of Network Goods: A Non-Innovating Firm Will Gain," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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    Other versions:
  3. Calzada, Joan & Valletti, Tommaso, 2005. "Network Competition and Entry Deterrence," CEPR Discussion Papers 5381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Joseph Farrell & Garth Saloner, 1985. "Installed Base and Compatibility With Implications for Product Preannouncements," Working papers 385, Massachusetts Institute of Technology (MIT), Department of Economics.
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  5. 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. [Downloadable!] (restricted)
  6. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
    Other versions:
  7. Fabio Maria Manenti & Ernesto Somma, 2008. "One-Way Compatibility, Two-Way Compatibility and Entry in Network Industries," "Marco Fanno" Working Papers 0068, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
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  8. Choi, Jay Pil, 1997. "The Provision of (Two-Way) Converters in the Transition Process to a New Incompatible Technology," Journal of Industrial Economics, Blackwell Publishing, vol. 45(2), pages 139-53, June. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
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  11. Church, Jeffrey & Gandal, Neil, 1996. "Strategic entry deterrence: Complementary products as installed base," European Journal of Political Economy, Elsevier, vol. 12(2), pages 331-354, September. [Downloadable!] (restricted)
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  12. 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. [Downloadable!]
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  13. Matutes, Carmen & Regibeau, Pierre, 1996. "A selective review of the economics of standardization. Entry deterrence, technological progress and international competition," European Journal of Political Economy, Elsevier, vol. 12(2), pages 183-209, September. [Downloadable!] (restricted)
  14. Church, J. & Gandal, N., 1993. "Equilibrium Foreclosure and Complementary Products," Papers 9303, Calgary - Department of Economics.
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  15. Jehiel, Phillipe & Moldovanu, Benny & Stacchetti, E., 1997. "Multidimensional Mechanism Design for Auctions with Externalities," Sonderforschungsbereich 504 Publications 97-04, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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  16. Choi, Jay Pil, 1996. "Do converters facilitate the transition to a new incompatible technology? A dynamic analysis of converters," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 825-835, October. [Downloadable!] (restricted)
    Other versions:
  17. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June. [Downloadable!] (restricted)
  18. Besen, Stanley M & Farrell, Joseph, 1994. "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 117-31, Spring. [Downloadable!] (restricted)
  19. Giot, Pierre & Schwienbacher, Armin, 2007. "IPOs, trade sales and liquidations: Modelling venture capital exits using survival analysis," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 679-702, March. [Downloadable!] (restricted)
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  20. Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September. [Downloadable!] (restricted)
    Other versions:
  21. Norback, Pehr-Johan & Persson, Lars, 2007. "Investment liberalization -- Why a restrictive cross-border merger policy can be counterproductive," Journal of International Economics, Elsevier, vol. 72(2), pages 366-380, July. [Downloadable!] (restricted)
    Other versions:
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