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Network compatibility, intensity of competition and process R&D: A generalization

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  • Shrivastav, Sumit

Abstract

This paper analyzes implications of network compatibility and competition on process innovation in differentiated network goods duopoly. It shows that firms’ R&D investments are strategic substitutes (complements) if effective network compatibility is less (more) than product substitutability, regardless of the nature of product market competition. If R&D investments are strategic complements, firms always invest in process innovation and they invest more under Bertrand competition than under Cournot competition. If R&D investments are strategic substitutes, unlike Cournot firms, Bertrand firms do not always undertake process innovation; but when Bertrand firms also undertake process innovation, Cournot–Bertrand R&D ranking depends on the strength of network externalities. Presence of R&D spillover improves the case of strategic complementarity of R&D levels under both Bertrand and Cournot competition.

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  • Shrivastav, Sumit, 2021. "Network compatibility, intensity of competition and process R&D: A generalization," Mathematical Social Sciences, Elsevier, vol. 109(C), pages 152-163.
    • Handle: RePEc:eee:matsoc:v:109:y:2021:i:c:p:152-163
    DOI: 10.1016/j.mathsocsci.2020.12.003
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    Cited by:

    1. Tsuyoshi Toshimitsu, 2023. "The Impact of Compatibility on Incentives to Innovate in a Network Goods Market: A Duopoly Case," Discussion Paper Series 253, School of Economics, Kwansei Gakuin University.
    2. Domenico Buccella & Luciano Fanti & Luca Gori, 2023. "Strategic product compatibility in network industries," Journal of Economics, Springer, vol. 140(2), pages 141-168, October.
    3. Buccella Domenico & Fanti Luciano & Gori Luca, 2024. "Product Quality and Product Compatibility in Network Industries," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(1), pages 299-339, January.

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    More about this item

    Keywords

    Network compatibility; Network externalities; Process R&D; Bertrand–Cournot comparison; Product differentiation; R&D spillover;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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