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Efficient Upgrading in Network Goods : Is Commitment Always Good?

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  • Athanasopoulos, Thanos

    (Department of Economics, University of Warwick,)

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    Abstract

    The 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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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2013/twerp_1006a_athanasopoulos.pdf
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    Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1006.

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    Date of creation: 2013
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    Handle: RePEc:wrk:warwec:1006

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    1. Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(1), pages 55-83, March.
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    8. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    9. Bensaid, Bernard & Lesne, Jean-Philippe, 1996. "Dynamic monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 14(6), pages 837-855, October.
    10. Hoppe, Heidrun C. & Lee, In Ho, 2003. "Entry deterrence and innovation in durable-goods monopoly," European Economic Review, Elsevier, Elsevier, vol. 47(6), pages 1011-1036, December.
    11. Michael Waldman, 1996. "Planned Obsolescence and the R&D Decision," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 583-595, Autumn.
    12. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 822-41, August.
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