EconPapers    
Economics at your fingertips  
 

Strategic R%D in systems industry - a network externality-based theory

Sumit Sarkar ()

International Journal of Management and Network Economics, 2012, vol. 2, issue 3, 236-256

Abstract: The existing literature suggests that an incumbent monopolist supplier of a system component can successfully deter entry by increasing its installed base, which plays a role similar to that of the commitment value of investment in capacity. In this paper, we consider a systems market with network externality, where the consumers' utility not only depends on the network size but also on the technological quality of the product. We show that when the installed base of the incumbent fails to play its pre-emptive role to deter entry, the monopolist can deter entry by strategic R%D investment in upgrading its product. The result is independent of whether the R%D project is, ex-post, successful or not. Such entry deterrence is welfare reducing.

Keywords: systems; network externality; technological platforms; operating systems; compatibility; installed base; upgrading; backward compatibility; two-way converter; entry deterrence; limit pricing; signalling; R%D investment; research and development; welfare; anti-trust; network size; technological quality; product quality. (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.inderscience.com/link.php?id=48513 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmnec:v:2:y:2012:i:3:p:236-256

Access Statistics for this article

More articles in International Journal of Management and Network Economics from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().

 
Page updated 2022-09-14
Handle: RePEc:ids:ijmnec:v:2:y:2012:i:3:p:236-256