Efficient Upgrading in Network Goods : Is Commitment Always Good?
AbstractThe frequency of upgrades in technology markets is not socially optimal when the quality improvement is negligible and smaller than the adoption cost of the new product. In monopolies, the literature has identified a sufficient factor for efficient upgrading: the firm’s power to commit to whether it will upgrade or not in the future. This is not true when an entry threat applies. In fact, it could even be that commitment is a factor of inefficiency when the market is open to competition. As shown in this paper, the incumbent’s commitment adds an additional source of inefficiency while an entry threat could dissolve social optimality.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1006.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-05 (All new papers)
- NEP-COM-2013-07-05 (Industrial Competition)
- NEP-MIC-2013-07-05 (Microeconomics)
- NEP-NET-2013-07-05 (Network Economics)
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