The objective of this research project is to investigate the impact of the network effects occurring in some product or service markets on incentives for firms to invest in innovation. Network effects are external effects that are associated with the fact that the value of certain goods or services for a consumer depends not only on the intrinsic characteristics of the product but also on the network of its users.
Network effects are common in many important markets, such as telecommunications, e-commerce platform, aggregators of information, online games, media markets, credit cards, social networking, fashion, etc. These affect both consumer behaviour and the strategies of companies operating in these markets. However, there are still open questions about the incentives of companies to invest in research and development in network industries, in particular (1) the private and social benefits of research and development cooperation in network industries and (2) possible practices aimed at restricting competition in network industries due to the functioning of their R&D cooperation.
The cooperation of companies at the stage of R&D investment can increase the effectiveness of research efforts and willingness to invest by improving the absorption of profit. However, it can also lead to anti-competitive behaviour in the product market. This project aims to verify what the role of network effects is for the investment strategies of firms. We check whether the presence of network effects has a positive impact on firms’ propensity to invest in R&D and on incentives to engage in research cooperation. We also wish to assess the implications for consumers and for the welfare of such cooperation: whether it can be beneficial, even if it leads to potential collusion restricting competition?