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Title:Dynamic R&D incentives with network externalities PDF Logo
Authors:Cerquera Dussán, Daniel
Issue Date:2006
Series/Report no.:ZEW Discussion Papers 06-94
Abstract:This paper studies the incentives to undertake uncertain R&D initiatives in a dynamic duopoly network industry. It is shown that network externalities positively affect the incentives to invest in R&D. In the model, competition resembles a preemption race and, therefore, market performance implies an overinvestment in R&D in comparison with the social optimum. Moreover, network externalities have an important impact in the dynamic evolution of the industry. Although in the long-run a single firm dominates the market (i.e. wins the race), short-run competition is very fierce and concentrated on neck-and-neck technological configurations. This short-run competition is fiercer and longer, the higher the level of network externalities. Policy measures that increase technological diffusion (i.e. mandatory licensing), increase the level of competition and/or prolong the short-run competition have an important positive impact on consumer welfare and on firms? R&D incentives.
Subjects:Network externalities
Innovation
Imperfect Competition
Dynamic Games
JEL:L13
C73
O31
D85
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des ZEW
ZEW Discussion Papers

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