R&D in Markets with Network Externalities

Désiré Vencatachellum () and Caroline Boivin ()
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Désiré Vencatachellum: HEC-Montreal, Université de Montréal
Caroline Boivin: University of Sherbrooke

Economics Bulletin, 2002, vol. 12, issue 9, 1-8

Abstract: We study how network externalities affect research and development (R&D) investments by a non-cooperative duopoly that offers compatible products. We find that multiple R&D equilibria may arise when network externalities are non linear in the number of consumers. The lowest R&D equilibrium corresponds to the case where network externalities are absent. However, even in the presence of network externalities, firms may be trapped in a low-R&D equilibrium where output, and therefore consumers' valuation of the network size, is low. We derive the conditions under which the highest-R&D equilibrium Pareto dominates.

Keywords: Network; Externalities (search for similar items in EconPapers)
JEL-codes: L0 L1 (search for similar items in EconPapers)
Date: 2002-08-26
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Citations: View citations in EconPapers (9)

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