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Network externalities and process R&D: A Cournot-Bertrand comparison

Author

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  • Mili Naskar

    (Indira Gandhi Institute of Development Research)

  • Rupayan Pal

    (Indira Gandhi Institute of Development Research)

Abstract

This paper examines the implication of the nature of competition in a market with network externalities on strategic investment in process R&D by firms. It shows that network externalities have a positive effect on process R&D, regardless of the nature of product market competition; but, that effect is larger under Bertrand competition than under Cournot competition. If network externalities are sufficiently strong, regardless of the degree of product differentiation, Bertrand firms have a stronger incentive for process R&D than Cournot firms. Otherwise, if network externalities are not sufficiently strong, the higher the degree of product differentiation, the greater is the possibility of Bertrand R&D to be higher than Cournot R&D.

Suggested Citation

  • 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.
  • Handle: RePEc:ind:igiwpp:2016-020
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    Cited by:

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    3. 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.
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    7. Ryo Hashizume & Takeshi Ikeda & Tatsuhiko Nariu, 2021. "Price discrimination with network effects: different welfare results from identical demand functions," Economics Bulletin, AccessEcon, vol. 41(3), pages 1807-1812.

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    More about this item

    Keywords

    Process R&D; Network Externalities; Cournot; Bertrand; Product Differentiation;
    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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