R&D in the Presence of Network Externalities: Timing and Compatibility
Volume: Volume 29, No. 3
Issue: Autumn 1998
Pages: pp. 531-547
Authors: Eirik Gaard Kristiansen
Title: R&D in the Presence of Network Externalities: Timing and Compatibility
Abstract: Two rival firms decide on the time of R&D and whether the new products should be compatible. I show that network externalities may induce the firms to introduce new incompatible technologies early, which is socially harmful as the R&D costs increase, and de facto standardization becomes less likely. Compared with the equilibrium outcome, both firms may gain by delaying the introduction of incompatible technologies. By agreeing on common standards before product introduction, entry is delayed and profit may increase. An ex post optimal standardization policy may increase the incentives for early product introduction and consequently be an undesirable policy ex ante.
JEL Classification
Management of Technological Innovation and R&D (O320)
Research and Development (6212)