Technological competition in network markets with policy implications

Abstract

In this article, we study the technological competition in network markets—markets characterized by complementarities between and among economic agents. We identify three sources of complementarities and provide a working definition of network markets. Then, we proceed to discuss the technology generation and diffusion in network markets based upon traditional microeconomic and industrial organization theories of technological competition. Major findings are (1) network features of the market exacerbate distortion in private R&D investment, (2) technology diffusion in network markets is vulnerable to manipulation from supply-side and to deviate from socially optimal diffusion path and (3) presence of network features is a prima facie rationale for synchronization of technology generation and diffusion policies. We conclude with implications for ongoing debate about intellectual property protection of software.