Standard-Creating Coalitions in Oligopoly with Differentiated Products and Variable Network Density

30 Pages Posted: 27 Jun 2007

See all articles by Ruslan Lukach

Ruslan Lukach

University of Antwerp - Faculty of Applied Economics; CPB Netherlands Bureau of Economic Policy Analysis

Peter M. Kort

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER)

Joseph Plasmans

University of Antwerp - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Tilburg University

Date Written: June 22, 2007

Abstract

This paper considers the problem of standard-creating coalition formation in an oligopoly. Cooperative R&D investments with the aim to improve product quality are explicitly taken into account.

We obtain the following results. If both the strength of network effects and the degree of product substitutability are weak, no stable standard coalition is feasible and it is also socially optimal not to create a standard. However, with strong network effects and product substitutability the grand coalition is the stable equilibrium, which is also socially optimal. In between these limits a multiple-standards coalition structure can be a stable equilibrium, although from a welfare perspective it would be best to create one common standard.

If a stable equilibrium contains multiple standards, the firms invest more in R&D than in the case of the grand coalition. It is shown that competition among standards stimulates quality improving innovation.

Keywords: Standards, Coalition creation, R&D

JEL Classification: C72, D21, O31

Suggested Citation

Lukach, Ruslan and Kort, Peter and Plasmans, Joseph E. J., Standard-Creating Coalitions in Oligopoly with Differentiated Products and Variable Network Density (June 22, 2007). Available at SSRN: https://ssrn.com/abstract=996856 or http://dx.doi.org/10.2139/ssrn.996856

Ruslan Lukach (Contact Author)

University of Antwerp - Faculty of Applied Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Peter Kort

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

HOME PAGE: http://center.uvt.nl/staff/kort/

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

Joseph E. J. Plasmans

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tilburg University

Postbus 90153
Tilburg, DC 5000 LE
Netherlands

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