Monopoly R&D and Compatibility Decisions in Network Industries
AbstractIn network industries, we often observe frequent upgrades of existing products as well as delayed introductions of new products. In order to explain these contrasting phenomena, this paper examines a durable-good monopolist's incentive for R&D in- vestment in new product development in a market with network effects. We show that if the network effect is strong the monopolist underinvests in R&D compared to the commitment level, whereas overinvestment occurs when the network effect is weak. The monopolist also chooses full intergenerational compatibility between products. We then extend the analysis to the cases of potential entry and successive innovations, and examine how the results change in these extensions.
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Bibliographic InfoPaper provided by Yonsei University, Yonsei Economics Research Institute in its series Working papers with number 2012rwp-43.
Length: 36 pages
Date of creation: Oct 2012
Date of revision:
Planned Obsolescence; Network Effects; Vaporware;
Find related papers by JEL classification:
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-06 (All new papers)
- NEP-COM-2012-12-06 (Industrial Competition)
- NEP-IND-2012-12-06 (Industrial Organization)
- NEP-INO-2012-12-06 (Innovation)
- NEP-MIC-2012-12-06 (Microeconomics)
- NEP-NET-2012-12-06 (Network Economics)
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