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Strategic R&D And Network Compatibility

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  • Pekka Saaskilahti

Abstract

We analyse the effects of network externalities in strategic R&D competition. We present a model of two firms competing with R&D investments and prices in a differentiated consumer market. Buyers form firm-specific networks which can be compatible. A high degree of compatibility and large spillovers moderate price competition due to weak strategic value of firm-specific networks and R&D investments, respectively. Asymmetry in product qualities brings out network effects that cancel out in conventional symmetric settings. The lower quality firm increases R&D and decreases its price as spillovers or network compatibility is increased. This happens when R&D and firm-specific network size have high strategic value.

Suggested Citation

  • Pekka Saaskilahti, 2006. "Strategic R&D And Network Compatibility," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(8), pages 711-733.
  • Handle: RePEc:taf:ecinnt:v:15:y:2006:i:8:p:711-733
    DOI: 10.1080/10438590500510657
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    References listed on IDEAS

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    Cited by:

    1. Xing, Mingqing, 2014. "On the optimal choices of R&D risk in a market with network externalities," Economic Modelling, Elsevier, vol. 38(C), pages 71-74.
    2. Mili Naskar & Rupayan Pal, 2016. "Network externalities and process R&D: A Cournot-Bertrand comparison," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2016-020, Indira Gandhi Institute of Development Research, Mumbai, India.

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    Keywords

    R&D; Spillovers; Networks; Compatibility;

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