IDEAS home Printed from https://ideas.repec.org/p/kgu/wpaper/309.html

Network Connectivity and R&D Competition in a Hotelling Model: Market Coverage, Consumer Expectations, and Asymmetric Firms

Author

Listed:
  • Tsuyoshi Toshimitsu

    (School of Economics, Kwansei Gakuin University)

Abstract

Network connectivity is an important function in network industries. Based on the framework of a Hotelling model, we consider the impact of connectivity between network goods on incentives to innovate product R&D activities and profits. To explore the problems, we focus on the following three perspectives: market coverage (i.e., full and partial coverage), consumer expectations (i.e., rational and active expectations), and asymmetric firms (i.e., a high- and low-quality firm). Our findings are as follows. In the full market coverage case, the impact of connectivity on product R&D activities and profits depends on the type of consumer expectations and the difference in the quality of the firms. However, in the partial market coverage case, as connectivity improves, product R&D activities and profits increase, irrespective of the type of consumer expectations and the difference in the quality of the firms.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2026. "Network Connectivity and R&D Competition in a Hotelling Model: Market Coverage, Consumer Expectations, and Asymmetric Firms," Discussion Paper Series 309, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:309
    as

    Download full text from publisher

    File URL: http://192.218.163.163/RePEc/pdf/kgdp309.pdf
    File Function: First version, 2026
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
    2. Foros, Oystein & Hansen, Bjorn, 2001. "Competition and compatibility among Internet Service Providers," Information Economics and Policy, Elsevier, vol. 13(4), pages 411-425, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Salim, Claudia, 2008. "Platform interconnection and quality incentives," Discussion Papers 2008/16, Free University Berlin, School of Business & Economics.
    2. María Fernanda Viecens, 2009. "Compatibility with Firm Dominance," Working Papers 2009-12, FEDEA.
    3. Jahn, Eric & Prüfer, Jens, 2008. "Interconnection and competition among asymmetric networks in the Internet backbone market," Information Economics and Policy, Elsevier, vol. 20(3), pages 243-256, September.
    4. Raphaël Soubeyran, 2019. "Technology adoption and pro-social preferences," CEE-M Working Papers halshs-02291905, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    5. Feng, Yao, 2011. "Local spillovers and learning from neighbors: Evidence from durable adoptions in rural China," MPRA Paper 33924, University Library of Munich, Germany.
    6. Sun Me Choi & Christian Fernando Libaque-Saenz & Sang-woo Lee & Myeong-Cheol Park, 2016. "Margin squeeze in the Internet backbone interconnection market: a case study of Korea," Telecommunication Systems: Modelling, Analysis, Design and Management, Springer, vol. 61(3), pages 531-542, March.
    7. Mileva, Elitza & Siegfried, Nikolaus, 2012. "Oil market structure, network effects and the choice of currency for oil invoicing," Energy Policy, Elsevier, vol. 44(C), pages 385-394.
    8. Mehmet Ekmekci & Alexander White & Lingxuan Wu, 2025. "Platform Competition and Interoperability: The Net Fee Model," Management Science, INFORMS, vol. 71(10), pages 8842-8864, October.
    9. Howell, Bronwyn, 2006. "Unveiling 'Invisible Hands': Two-Sided Platforms in Health Care Markets," Working Paper Series 18936, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    10. Ostrizek, Franz & Sartori, Elia, 2023. "Screening while controlling an externality," Games and Economic Behavior, Elsevier, vol. 139(C), pages 26-55.
    11. Burani, Nadia & Mantovani, Andrea, 2025. "Environmental policies with green network effect and price discrimination," Journal of Economic Behavior & Organization, Elsevier, vol. 235(C).
    12. Ciccotello, Conrad S & Hornyak, Martin J & Piwowar, Michael S, 2004. "Research and Development Alliances: Evidence from a Federal Contracts Repository," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 123-166, April.
    13. Jullien, Bruno, 2001. "Competing with Network Externalities and Price Discrimination," CEPR Discussion Papers 2883, Centre for Economic Policy Research.
    14. Howell, Bronwyn, 2006. "Unveiling 'Invisible Hands': Two-Sided Platforms in Health Care Markets," Working Paper Series 3841, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    15. Chegut, Andrea & Eichholtz, Piet & Kok, Nils, 2019. "The price of innovation: An analysis of the marginal cost of green buildings," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    16. Shy, O. & Chou, C-F., 1990. "Do Consumers Always Gain When More People Buy The Same Brand?," Papers 40-90, Tel Aviv.
    17. Hahn, Jong-Hee, 2003. "Nonlinear pricing of telecommunications with call and network externalities," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 949-967, September.
    18. Karen Ruckman & Nilesh Saraf & Vallabh Sambamurthy, 2015. "Market Positioning by IT Service Vendors Through Imitation," Information Systems Research, INFORMS, vol. 26(1), pages 100-126, March.
    19. Heijmans, Roweno J.R.K. & Suetens, Sigrid, 2025. "Comparing Subsidies to Solve Coordination Failure," Discussion Papers 2025/9, Norwegian School of Economics, Department of Business and Management Science.
    20. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2006_038, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kgu:wpaper:309. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Toshihiro Okada (email available below). General contact details of provider: https://edirc.repec.org/data/dekgujp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.