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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
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    References listed on IDEAS

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    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

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