R&D incentives, compatibility and network externalities
AbstractThis paper analyzes the impact of network externalities on R&D competition between an incumbent and a potential entrant. The analysis shows that the incumbent always invests more than the entrant in the development of higher quality network goods. However, the incumbent exhibits a too low level of investments, while the entrant invests too much in R&D in comparison with the social optimum. In the model entry occurs too often in equilibrium. These inefficiencies are solely due to the presence of network externalities. By choosing compatible network goods, firms do not necessarily reduce the R&D competition intensity. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-93.
Date of creation: 2006
Date of revision:
Network externalities; Innovation; Imperfect Competition;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-14 (All new papers)
- NEP-COM-2007-04-14 (Industrial Competition)
- NEP-IPR-2007-04-14 (Intellectual Property Rights)
- NEP-MIC-2007-04-14 (Microeconomics)
- NEP-NET-2007-04-14 (Network Economics)
- NEP-PPM-2007-04-14 (Project, Program & Portfolio Management)
- NEP-SOC-2007-04-14 (Social Norms & Social Capital)
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