Integration and Independent Innovation on a Network

Joseph Farrell ()

Industrial Organization from University Library of Munich, Germany

Abstract: Physical telecom networks are costly and few, traditionally to the point of monopoly. Innovation thrives with many independent minds. So one might hope independent innovators, not only its proprietor M, can offer innovative services on a network, as has been true on the Internet. This issue is central in telecom policy; it also arises elsewhere, including complaints about Microsoft. I try to expound the following key points. Often an unregulated M has ex ante incentives to organize service innovation efficiently. But this incentive breaks down ex post as M can extract an independent J's quasi-rents (Farrell and Michael Katz 2000). Even ex ante, the "one monopoly rent theorem" (Ward Bowman 1957) fails when M's bottleneck access business is more regulated than its competitive services (e.g., Jean-Jacques Laffont and Jean Tirole 2000). This tempts M to sabotage J's innovations. "Quarantining" M from the service sector solves these problems, but excludes the firm with (often) the best opportunities and the strongest incentives to innovate. "Parity pricing" or ECPR (Robert Willig 1979) purports to get the best of both worlds (BoBW). But it seems so hard to implement in innovation markets that one might construe ECPR analysis as reductio ad absurdum for BoBW.

JEL-codes: L5 L96 O3 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2004-01-08
New Economics Papers: this item is included in nep-net
Note: 12 pages, Adobe.pdf
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0401/0401002.pdf (application/pdf)

Related works:
Working Paper: Integration and Independent Innovation on a Network (2012)
Journal Article: Integration and Independent Innovation on a Network (2003)
Working Paper: Integration and Independent Innovation on a Network (2003)
Working Paper: Integration and Independent Innovation on a Network (2003)
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:wpa:wuwpio:0401002

Access Statistics for this paper

More papers in Industrial Organization from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).