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Entrepreneurial Innovations in Network Industries

In this paper, we study entrepreneurial innovations in an industry characterized by network effects. We show that the presence of network externalities tends to make the entrepreneur prefer sale to entry. Moreover, we also show that the incentive to innovate for entry decreases when network effects become stronger, whereas there is an increase in the incentive for innovation for sale. Moreover, we show that increasing the degree of industry-wide standardization furthers the goal of increasing entry by entrepreneurs. However, this may come at the cost of reducing the research intensity by reducing the bidding competition among incumbents over the innovations of entrepreneurs.

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File URL: http://www.netinst.org/Norback_Persson_Tag_08-02.pdf
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Paper provided by NET Institute in its series Working Papers with number 08-02.

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Length: 29 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:net:wpaper:0802
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Joan Calzada & Tommaso M. Valletti, 2008. "Network Competition and Entry Deterrence," Economic Journal, Royal Economic Society, vol. 118(531), pages 1223-1244, 08.
  2. Mikhail Klimenko & Kamal Saggi, 2007. "Technical compatibility and the mode of foreign entry with network externalities," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 176-206, February.
  3. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
  4. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1999. "Multidimensional Mechanism Design for Auctions with Externalities," Journal of Economic Theory, Elsevier, vol. 85(2), pages 258-293, April.
  5. Church, Jeffrey & Gandal, Neil, 1996. "Strategic entry deterrence: Complementary products as installed base," European Journal of Political Economy, Elsevier, vol. 12(2), pages 331-354, September.
  6. Nicholas Economides, 1997. "Network Externalities, Complementarities, and Invitations to Enter," Industrial Organization 9701004, EconWPA.
  7. Fabio M. Manenti & Ernesto Somma, 2002. "One-Way Compatibility, Two-Way Compatibility and Entry in Network Industries," Industrial Organization 0205001, EconWPA, revised 04 Oct 2002.
  8. Jeffrey Church & Neil Gandal, 1993. "Equilibrium Foreclosure and Complementary Products," Industrial Organization 9311001, EconWPA.
  9. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  10. Joseph Farrell and Garth Saloner., 1989. "Converters, Compatibility, and the Control of Interfaces," Economics Working Papers 89-130, University of California at Berkeley.
  11. Joshua S. Gans & David H. Hsu & Scott Stern, 2002. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 571-586, Winter.
  12. Jaehong Kim, 1993. "Fulfilled Expectations of Entry," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 681-695, Winter.
  13. Ilya Segal & Michael Whinston, 2005. "Antitrust in Innovative Industries," NBER Working Papers 11525, National Bureau of Economic Research, Inc.
  14. Norbäck, Pehr-Johan & Persson, Lars, 2005. "Investment Liberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive," Working Paper Series 644, Research Institute of Industrial Economics.
  15. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
  16. Choi, Jay Pil, 1996. "Standardization and experimentation: Ex ante vs. ex post standardization," European Journal of Political Economy, Elsevier, vol. 12(2), pages 273-290, September.
  17. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
  18. Joshua S. Cans & Scott Stern, 2000. "Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 485-511, December.
  19. Choi, J.P., 1994. "Do Converters Facilitate the Transition to a New Incompatible Technology?: A Dynamic Analysis of Converters," Discussion Papers 1994_04, Columbia University, Department of Economics.
  20. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
  21. Gerard Llobet & Michael Manove, 2006. "Network Size and Network Capture," Boston University - Department of Economics - Working Papers Series WP2006-007, Boston University - Department of Economics.
  22. Cabral, Luís & Salant, David, 2014. "Evolving technologies and standards regulation," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 48-56.
  23. David A. Malueg & Marius Schwartz, 2006. "COMPATIBILITY INCENTIVES OF A LARGE NETWORK FACING MULTIPLE RIVALS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 527-567, December.
  24. Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 55-83, March.
  25. Gans, Joshua S. & Stern, Scott, 2003. "The product market and the market for "ideas": commercialization strategies for technology entrepreneurs," Research Policy, Elsevier, vol. 32(2), pages 333-350, February.
  26. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
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