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Innovation of Network Goods: A Non-Innovating Firm Will Gain

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  • Amihai Glazer
  • Vesa Kanniainen
  • Mikko Mustonen

Abstract

We consider duopolists innovating and producing a good subject to network externalities, so that the reservation price of a consumer increases with aggregate consumption. The post-innovation network consists of two compatible sub-networks, with increased network valuation of the new product. When the non-innovating firm enjoys a larger profit than when neither firm innovates, free-riding on the winner’s network as a public good arises. With such a network spillover, duopolists may underinvest in innovation.

Suggested Citation

  • Amihai Glazer & Vesa Kanniainen & Mikko Mustonen, 2002. "Innovation of Network Goods: A Non-Innovating Firm Will Gain," CESifo Working Paper Series 692, CESifo.
    • Handle: RePEc:ces:ceswps:_692
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    References listed on IDEAS

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    Cited by:

    1. Lukach, R. & Plasmans, J.E.J., 2002. "Measuring Knowledge Spillovers using Patent Citations : Evidence from the Belgian Firm's Data," Other publications TiSEM d78bf59a-e0ff-4451-86b9-1, Tilburg University, School of Economics and Management.

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