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Durable Goods, Innovation and Network Externalities

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  • 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.

Suggested Citation

  • Cerquera Dussán, Daniel, 2007. "Durable Goods, Innovation and Network Externalities," ZEW Discussion Papers 07-086, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:7010
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    More about this item

    Keywords

    Network externalities; Durable Goods; Innovation; Imperfect Competition;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • 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

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