Markets with network externalities: non-cooperation vs.Cooperation in R&D

This paper examines three strategies for R&D investments in oligopoly markets with network externalities. The Cell project of the Sony-Toshiba-IBM R&D joint venture motivates our analysis and presentation. In addition to the particular characteristics that apply to the Cell project, we develop formal economic explanations for observed R&D investment strategies in markets with network externalities. Our analytical model suggests that the degree of product compatibility, initial market shares, and the intensity of the product-market competition are instrumental to the R&D strategy in these markets. The paper ties together the literature on information technologies, strategy, and economics, and derives optimal patterns of strategic behavior in the R&D (pre-production) stage in oligopoly markets with network externalities.

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