Innovation, Pricing and Targeting in Networks

Yves Zenou, Fabrizio Panebianco and Thierry Verdier

No 11398, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Consider a network of firms where a firm T is given the opportunity to innovate a product (first-generation innovation). If successful, this firm can temporarily sell this innovation to her direct neighbors because this will give her access to a larger market. However, if her direct neighbors innovate themselves on top of firm T's innovation (second-generation innovations), then firm T loses the right to sell her initial innovation to the remaining firms in the market. We analyze this game where each firm (T and her direct neighbors) has to decide at which price they want to sell their innovation. We show that the optimal price policy of each firm depends on the level of property rights protection, the position of firm T in the network, her degree and the size of the market. We then analyze the welfare implications of our model where the planner that maximizes total welfare has to decide which firm to target. We show that it depends on the level of property rights protection and on the network structure in a non-trivial way.

Keywords: Networks; Diffusion centrality; Targets; Innovation (search for similar items in EconPapers)
JEL-codes: D85 L1 Z13 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP11398 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:11398

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP11398

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().