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This paper analyses the effects of network externalities in strategic R&D competition. We present a model of two firms competing with R&D investments and prices in a differentiated consumer market. Buyers form firm-specific networks which can be compatible. A high degree of compatibility and large spillovers moderate price competition due to weak strategic value of firm-specific networks and R&D investments respectively. Asymmetry in product qualities brings out network effects that cancel outdoi:10.1080/10438590500510657 fatcat:ti3gobnbk5hevathppg3atlkci