R&D incentives in compatible networks |
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Authors: | Eirik Gaard Kristiansen Marcel Thum |
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Affiliation: | (1) Present address: Department of Economics, The Norwegian School of Economics and Business Administration, Hellev. 30, N-5035 Bergen, Norway;(2) Present address: Department of Economics, University of Munich, Schackstrasse 4, D-80539 Munich, Germany |
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Abstract: | Network externalities describe the phenomenon that a good becomes more valuable to each user the more other consumers use the same or a compatible troduct. Whereas most of the recent literature on network effects has focused on the adoption of products, this paper shows that network externalities can have important feedback effects on the incentives to carry out R&D and develop new products. Even if the products are compatible, network effects can lead to strategic overinvestment or underinvestment. The firms' R&D decisions are compared with the socially optimal ones. |
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Keywords: | network externalities innovation |
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