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| Désiré Vencatachellum and Caroline Boivin |
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| ''R&D in Markets with Network Externalities'' |
| ( 2002, Vol. 12 No.9 ) |
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| We study how network externalities affect research and development (R&D) investments by a non-cooperative duopoly that offers compatible products. We find that multiple R&D equilibria may arise when network externalities are non linear in the number of consumers. The lowest R&D equilibrium corresponds to the case where network externalities are absent. However, even in the presence of network externalities, firms may be trapped in a low-R&D equilibrium where output, and therefore consumers' valuation of the network size, is low. We derive the conditions under which the highest-R&D equilibrium Pareto dominates. |
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| Keywords: Network Externalities |
JEL:
L1 - Market Structure, Firm Strategy, and Market Performance: General |
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| Manuscript Received : Jul 05 2002 | | Manuscript Accepted : Aug 26 2002 |
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