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R&D for Quality Improvement and Network Externalities

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  • Luca Lambertini
  • Raimondello Orsini

Abstract

We investigate the bearings of network externalities on product quality im- provements requiring costly R&D investments. The model considers the dynamic behaviour of a monopolist alternatively maximising profits or social welfare. On the one hand, we confirm much of the acquired wisdom from the static literature on the same topic, about the arising of quality undersupply at the private optimum. On the other, we identify the initial conditions that must be met for R&D activity to be observed under profit-seeking behaviour. We also show that the presence of network externalities affects the optimal behaviour of the profit-seeking firm but not that of a benevolent planner, who serves all consumers and smooths the R&D costs leading to a steady state quality which is independent of network concerns.
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  • Luca Lambertini & Raimondello Orsini, 2010. "R&D for Quality Improvement and Network Externalities," Networks and Spatial Economics, Springer, vol. 10(1), pages 113-124, March.
    • Handle: RePEc:kap:netspa:v:10:y:2010:i:1:p:113-124
    DOI: 10.1007/s11067-007-9034-7
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    Cited by:

    1. Sahar Fekih Romdhane & Chokri Aloui & Khaïreddine Jebsi, 2020. "On the Net Neutrality Efficiency under Congestion Price Discrimination," Networks and Spatial Economics, Springer, vol. 20(3), pages 833-872, September.
    2. Garcia Filomena, 2013. "When Should a Monopolist Improve Quality in a Network Industry?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 1-34, September.

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