Abstract

This study develops a duopoly model describing the optimal choice of R&D risk among R&D projects with the same expected outcome in a market exhibiting network externalities. It demonstrates that, when firms’ product is incompatible, the level of R&D risk increases in the intensity of network externality. However, when product is compatible, the impact of network externality on the R&D risk choices depends on the degree of market coverage. Moreover, firms carry on higher (resp. lower) risk R&D project when their product is incompatible than compatible in a full-coverage (resp. partial-coverage) market.

Keywords:

Compatibility, hotelling model, network externality, R&D risk, uncertainty,

References

Competing interests

The authors have no competing interests.

Open Access Policy

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Copyright

The authors have no competing interests.