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R&D rivalry with endogenous compatibility

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  • John S. Heywood
  • Zerong Wang
  • Guangliang Ye

Abstract

A classic R&D rivalry is compared to R&D cooperation while embedded in a model of endogenous network compatibility. We show that complete incompatibility is more likely to occur with cooperative R&D. Complete incompatibility increases the advantage in R&D and profitability of the incumbent over the entrant. In our initial illustration, cooperation in network industries with endogenous compatibility generates no higher (and often lower) welfare than in non‐network industries. In our generalization, cooperation in network industries generates welfare loss for a wider range of R&D spillovers. This suggests that R&D cooperation should receive stricter policy scrutiny in network industries with endogenous compatibility.

Suggested Citation

  • John S. Heywood & Zerong Wang & Guangliang Ye, 2022. "R&D rivalry with endogenous compatibility," Manchester School, University of Manchester, vol. 90(3), pages 354-384, June.
    • Handle: RePEc:bla:manchs:v:90:y:2022:i:3:p:354-384
    DOI: 10.1111/manc.12399
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    References listed on IDEAS

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    Cited by:

    1. Tsuyoshi Toshimitsu, 2023. "The Impact of Compatibility on Incentives to Innovate in a Network Goods Market: A Duopoly Case," Discussion Paper Series 253, School of Economics, Kwansei Gakuin University.
    2. Zhenjun Yan & Xinyan Wu & Jing Li & Bingqing Liang, 2022. "Competition and Heterogeneous Innovation Qualities: Evidence from a Natural Experiment," Sustainability, MDPI, vol. 14(13), pages 1-21, June.

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