Monopoly R&D and Compatibility Decisions in Network Industries

Jong-Hee Hahn and Jin-Hyuk Kim ()

No 2012rwp-43, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: In network industries, we often observe frequent upgrades of existing products as well as delayed introductions of new products. In order to explain these contrasting phenomena, this paper examines a durable-good monopolist's incentive for R&D in- vestment in new product development in a market with network effects. We show that if the network effect is strong the monopolist underinvests in R&D compared to the commitment level, whereas overinvestment occurs when the network effect is weak. The monopolist also chooses full intergenerational compatibility between products. We then extend the analysis to the cases of potential entry and successive innovations, and examine how the results change in these extensions.

Keywords: Planned Obsolescence; Network Effects; Vaporware (search for similar items in EconPapers)
JEL-codes: L12 L15 M21 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2012-10
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino, nep-mic and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:yon:wpaper:rwp-201243

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