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Désiré Vencatachellum and Caroline Boivin
''R&D in Markets with Network Externalities''
( 2002, Vol. 12 No.9 )
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.
Keywords: Network Externalities
L1 - Market Structure, Firm Strategy, and Market Performance: General
Manuscript Received : Jul 05 2002 Manuscript Accepted : Aug 26 2002

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