Abstract:
This paper examines the implication of the nature of competition in a market with network externalities
on strategic investment in process R&D by firms. It shows that network externalities have a positive
effect on process R&D, regardless of the nature of product market competition; but, that effect is larger
under Bertrand competition than under Cournot competition. If network externalities are sufficiently
strong, regardless of the degree of product differentiation, Bertrand firms have a stronger incentive for
process R&D than Cournot firms. Otherwise, if network externalities are not sufficiently strong, the
higher the degree of product differentiation, the greater is the possibility of Bertrand R&D to be higher
than Cournot R&D.
