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Product and process innovations in a monopoly market with network externalities

Mingqing Xing

This study analyzes the R&D investment problem when a monopoly performs both process innovation and product innovation in a market presents network externalities. It considers both consumer fulfilled expectation and myopic expectation and finds that: (i) product and process innovations are complementary and the network externalities can not change this complementary relationship in both types of expectation; (ii) the complementary degree is not influenced by the network externalities in the myopic expectation case, but it increases with the intensity of network externalities in the fulfilled expectation case; (iii) the complementary degree in the fulfilled expectation case is higher than that in the myopic expectation case; (iv) the optimal product (or process) innovation efforts when the market exhibits network externalities are higher than that when it does not exhibit network externalities in both expectation cases