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Durable Goods, Innovation and Network Externalities

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  • Cerquera Dussán, Daniel
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    Abstract

    We develop a model of R&D competition between an incumbent and a potential entrant with network externalities and durable goods. We show that the threat of entry eliminates the commitment problem that an incumbent may face in its R&D decision due to the goods? durability. Moreover, a potential entrant over-invests in R&D and an established incumbent might exhibit higher, equal or lower R&D investments in comparison with the social optimum. In our model, the incumbent?s commitment problem and the efficiency of its R&D level are determined by the extent of the network externalities. --

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    Bibliographic Info

    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 07-086.

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    Date of creation: 2007
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    Handle: RePEc:zbw:zewdip:7010

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    Keywords: Network externalities; Durable Goods; Innovation; Imperfect Competition;

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