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Durable Goods, Innovation and Network Externalities

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Author Info
Cerquera Dussán, Daniel
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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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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Related research
Keywords: Network externalities Durable Goods Innovation Imperfect Competition

Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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This page was last updated on 2008-7-31.

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