Use this identifier to quote or link this document: http://hdl.handle.net/2072/211631

Direct and indirect subsidies in markets with system goods in the presence of externalities. Preliminary version
Slivko, Olga
Universitat Rovira i Virgili. Departament d'Economia; Universitat Rovira i Virgili. Centre de Recerca en Economia Industrial i Economia Pública
This paper derives a model of markets with system goods and two technological standards. An established standard incurs lower unit production costs but causes a negative externality. The paper derives the conditions for policy intervention and compares the effect of direct and indirect cost-reducing subsidies in two markets with system goods in the presence of externalities. If consumers are committed to the technology by purchasing one of the components, direct subsidies are preferable. For a medium-low cost difference between technological standards and a low externality cost it is optimal to provide a direct subsidy only to the first technology adopter. As the higher the externality cost raises, the more technology adopters should be provided with direct subsidies. This effect is robust in all extensions. In the absence of consumers commitment to a technological standard indirect and direct subsidies are both desirable. In this case, the subsidy to the first adopter is lower then the subsidy to the second adopter. Moreover, for the low cost difference between technological standards and low externality cost the fi rst fi rm chooses a superior standard without policy intervention. Finally, a perfect compatibility between components based on different technological standards enhances an advantage of indirect subsidies for medium-high externality cost and cost difference between technological standards. Journal of Economic Literature Classi fication Numbers: C72, D21, D40, H23, L13, L22, L51, O25, O33, O38. Keywords: Technological standards; complementary products; externalities; cost-reducing subsidies; compatibility.
2012
33 - Economia
Externalitats (Economia)
Jocs no-cooperatius (Matemàtica)
Conducta organitzacional
Mercats
Oligopolis
Organització industrial
Regulació del mercat
Política industrial
Progrès tecnològic
Política i govern
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31 p.
Working Paper
Universitat Rovira i Virgili. Departament d'Economia
Documents de treball del Departament d'Economia;2012-31
         

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