Author: Sumit Shrivastav
Title: Network Compatibility, Intensity of Competition and Process R&D : A Generalization
Abstract: This paper analyses implications of network compatibility and competition on process innovation in differentiated network goods duopoly. It shows that firms R&D investments are strategic substitutes (complements), if effective network compatibility is less (more) than product substitutability, regardless of the nature of competition. If R&D investments are strategic complements, firms always invest in process innovation and they invest more under Bertrand competition than under Cournot competition. If R&D investments are strategic substitutes, unlike Cournot firms, Bertrand firms don’t always undertake process innovation; but, when Bertrand firms also undertake process innovation, Cournot-Bertrand R&D ranking depends on the strength of network externalities.
Keywords: Network compatibility, Network Externalities, Process R&D, Bertrand-Cournot Compari-son, Product Differentiation
JEL Code: L13, D43, O31