Network Connectivity, Strategic R&D Competition, and Market Structure: A Hotelling Linear Market Model

Tsuyoshi Toshimitsu ()
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Tsuyoshi Toshimitsu: School of Economics, Kwansei Gakuin University

No 280, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Using the framework of a Hotelling linear market, we consider the impact of network connectivity (horizontal interoperability) between network goods on strategic R&D competition and profits. We first demonstrate that in the case of a fully covered (mature) market, as network connectivity increases, R&D activities decrease, but profits increase. Then, relaxing the assumption of market coverage, we demonstrate that in the case of a partially covered and uncovered (immature) market, as network connectivity increases, R&D activities at first decrease, and then increase given strong network externalities. Otherwise, the R&D activities monotonically increase. However, regardless of the strength of the network externalities, profits increase. Regarding quantity competition in the immature market, we obtain the same results in the case of price competition. We also consider the implication of network connectivity for market competitiveness.

Keywords: innovation; Network externality; Connectivity; interoperability; R&D competition; Hotelling linear market; Fulfilled expectations; Lerner index (search for similar items in EconPapers)
JEL-codes: D43 L13 L15 L31 L32 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2024-11
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:280

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