Long-run market configurations in a dynamic quality-ladder model with externalities

Mario Samano and Marc Santugini

Journal of Economic Dynamics and Control, 2020, vol. 117, issue C

Abstract: We study the impact of standard-setting by introducing an externality that increases product compatibility in the presence of asymmetric returns to investment in a dynamic quality-ladder-type model. We classify the long-run, multi-modal probability distributions over different market structures that arise from this model. In some cases, the lagging firm may remain in the market in the long-run depending on the strength of the externality. In the case where only the laggard invests in compatibility, it is possible that the laggard becomes a monopolist if the leader has a relatively low R&D capability and the two firms are almost symmetric in this same regard. This variety of multi-modal long-run distributions may have important consequences for the estimation and the simulation of this class of dynamic models.

Keywords: Quality-ladder model; Industry dynamics; Market structures; Standard-setting; Product compatibility (search for similar items in EconPapers)
JEL-codes: C61 C73 L13 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Externalities (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:117:y:2020:i:c:s0165188920301111

DOI: 10.1016/j.jedc.2020.103943

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