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R&D incentives, compatibility and network externalities

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  • Cerquera Dussán, Daniel

Abstract

This paper analyzes the impact of network externalities on R&D competition between an incumbent and a potential entrant. The analysis shows that the incumbent always invests more than the entrant in the development of higher quality network goods. However, the incumbent exhibits a too low level of investments, while the entrant invests too much in R&D in comparison with the social optimum. In the model entry occurs too often in equilibrium. These inefficiencies are solely due to the presence of network externalities. By choosing compatible network goods, firms do not necessarily reduce the R&D competition intensity.

Suggested Citation

  • Cerquera Dussán, Daniel, 2006. "R&D incentives, compatibility and network externalities," ZEW Discussion Papers 06-093, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:5486
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    References listed on IDEAS

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    More about this item

    Keywords

    Network externalities; Innovation; Imperfect Competition;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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