STRATEGIC R&D AND NETWORK COMPATIBILITY

Pekka Sääskilahti

Economics of Innovation and New Technology, 2006, vol. 15, issue 8, 711-733

Abstract: We analyse the effects of network externalities in strategic R&D competition. We present a model of two firms competing with R&D investments and prices in a differentiated consumer market. Buyers form firm-specific networks which can be compatible. A high degree of compatibility and large spillovers moderate price competition due to weak strategic value of firm-specific networks and R&D investments, respectively. Asymmetry in product qualities brings out network effects that cancel out in conventional symmetric settings. The lower quality firm increases R&D and decreases its price as spillovers or network compatibility is increased. This happens when R&D and firm-specific network size have high strategic value.

Keywords: R&D; Spillovers; Networks; Compatibility (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (8)

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DOI: 10.1080/10438590500510657

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