R&D incentives, compatibility and network externalities

Daniel Cerquera Dussán

No 06-093, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper analyzes the impact of network externalities on R&D competition between an incumbent and a potential entrant. The analysis shows that the incumbent always invests more than the entrant in the development of higher quality network goods. However, the incumbent exhibits a too low level of investments, while the entrant invests too much in R&D in comparison with the social optimum. In the model entry occurs too often in equilibrium. These inefficiencies are solely due to the presence of network externalities. By choosing compatible network goods, firms do not necessarily reduce the R&D competition intensity.

Keywords: Network externalities; Innovation; Imperfect Competition (search for similar items in EconPapers)
JEL-codes: D21 D85 L13 O31 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-com, nep-ipr, nep-pr~, nep-mic, nep-net, nep-ppm and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:5486

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