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The Effects of Integration on R&D Incentives in Systems Markets

Author

Listed:
  • Jay Pil Choi

    (Michigan State University, 101 Marshall Hall)

  • Gwanghoon Lee

    (Korea Information Society Development Institute, 1-1 Juam)

  • Christodoulos Stefanadis

    (Federal Reserve Bank of New York)

Abstract

We consider a systems market where two complementary components must be used in combination to provide valuable services. The market for the first component is monopolized whereas the market for the second is potentially served by multiple firms. We show that integration of the monopolist into the competitive complementary market may distort incentives for R&D, reducing total economic welfare.

Suggested Citation

  • Jay Pil Choi & Gwanghoon Lee & Christodoulos Stefanadis, 2003. "The Effects of Integration on R&D Incentives in Systems Markets," Netnomics, Springer, vol. 5(1), pages 21-32, May.
    • Handle: RePEc:kap:netnom:v:5:y:2003:i:1:d:10.1023_a:1024969416825
    DOI: 10.1023/A:1024969416825
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    References listed on IDEAS

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    1. Joseph Farrell & Michael L. Katz, 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 413-432, December.
    2. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    3. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
    4. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
    5. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    6. Farrell, Joseph & Katz, Michael L, 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 413-432, December.
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    Cited by:

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    6. Yongmin Chen & David E. M. Sappington, 2010. "Innovation In Vertically Related Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 373-401, June.

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    Keywords

    incentives; integration; R&D;
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