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Efficient Upgrading in Network Goods : Is Commitment Always Good?

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  • Athanasopoulos, Thanos

    (Department of Economics, University of Warwick,)

Abstract

The frequency of upgrades in technology markets is not socially optimal when the quality improvement is negligible and smaller than the adoption cost of the new product. In monopolies, the literature has identified a sufficient factor for efficient upgrading: the firm’s power to commit to whether it will upgrade or not in the future. This is not true when an entry threat applies. In fact, it could even be that commitment is a factor of inefficiency when the market is open to competition. As shown in this paper, the incumbent’s commitment adds an additional source of inefficiency while an entry threat could dissolve social optimality.

Suggested Citation

  • Athanasopoulos, Thanos, 2013. "Efficient Upgrading in Network Goods : Is Commitment Always Good?," The Warwick Economics Research Paper Series (TWERPS) 1006, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1006
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2013/twerp_1006.pdf
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    References listed on IDEAS

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    Cited by:

    1. Athanasopoulos, Thanos, 2014. "Compatibility, Intellectual Property,Innovation and Welfare in Durable Goods Markets with Network Effects," The Warwick Economics Research Paper Series (TWERPS) 1043, University of Warwick, Department of Economics.

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