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Network Connectivity, Strategic R&D Competition, and Market Structure: A Hotelling Linear Market Model

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  • Tsuyoshi Toshimitsu

    (School of Economics, Kwansei Gakuin University)

Abstract

Using the framework of a Hotelling linear market, we consider the impact of network connectivity (horizontal interoperability) between network goods on strategic R&D competition and profits. We first demonstrate that in the case of a fully covered (mature) market, as network connectivity increases, R&D activities decrease, but profits increase. Then, relaxing the assumption of market coverage, we demonstrate that in the case of a partially covered and uncovered (immature) market, as network connectivity increases, R&D activities at first decrease, and then increase given strong network externalities. Otherwise, the R&D activities monotonically increase. However, regardless of the strength of the network externalities, profits increase. Regarding quantity competition in the immature market, we obtain the same results in the case of price competition. We also consider the implication of network connectivity for market competitiveness.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2024. "Network Connectivity, Strategic R&D Competition, and Market Structure: A Hotelling Linear Market Model," Discussion Paper Series 280, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:280
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    More about this item

    Keywords

    innovation; Network externality; Connectivity; interoperability; R&D competition; Hotelling linear market; Fulfilled expectations; Lerner index;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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