STRATEGIC R&D AND NETWORK COMPATIBILITY |
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Authors: | Pekka Sääskilahti |
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Affiliation: | Department of Economics , Helsinki School of Economics , P.O. Box 1210, FIN-00101, Helsinki, Finland |
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Abstract: | We analyse the effects of network externalities in strategic R&D competition. We present a model of two firms competing with R&D investments and prices in a differentiated consumer market. Buyers form firm-specific networks which can be compatible. A high degree of compatibility and large spillovers moderate price competition due to weak strategic value of firm-specific networks and R&D investments, respectively. Asymmetry in product qualities brings out network effects that cancel out in conventional symmetric settings. The lower quality firm increases R&D and decreases its price as spillovers or network compatibility is increased. This happens when R&D and firm-specific network size have high strategic value. |
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Keywords: | R& D Spillovers Networks Compatibility |
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