Durable Goods, Innovation and Network Externalities

32 Pages Posted: 17 May 2009

See all articles by Daniel Cerquera

Daniel Cerquera

ZEW – Leibniz Centre for European Economic Research

Date Written: 2007

Abstract

We develop a model of R&D competition between an incumbent and a potential entrant with network externalities and durable goods. We show that the threat of entry eliminates the commitment problem that an incumbent may face in its R&D decision due to the goods' durability. Moreover, a potential entrant over-invests in R&D and an established incumbent might exhibit higher, equal or lower R&D investments in comparison with the social optimum. In our model, the incumbent's commitment problem and the efficiency of its R&D level are determined by the extent of the network externalities.

Keywords: Network externalities, Durable Goods, Innovation, Imperfect Competition

JEL Classification: D21, D85, L13, O31

Suggested Citation

Cerquera, Daniel, Durable Goods, Innovation and Network Externalities (2007). (ZEW) - Centre for European Economic Research, Vol. 7, No. 086, 2007, Available at SSRN: https://ssrn.com/abstract=1083607 or http://dx.doi.org/10.2139/ssrn.1083607

Daniel Cerquera (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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