Optimal successive product innovation decision in market with network effects based on MWTP

This paper examines an innovative firm´s two successive innovation stages in market with network effects. Innovator has to optimize strategy during the whole process. It chooses pricing strategy between skimming and penetration first, and then decides whether to utilize network effects or to dominate market monopolistically in second stage. We show that among situations taken into account, only when price skimming generates extra revenue significantly, should innovator choose skimming, or else should innovator select penetration. Second, our results reveal that whatever decision is made in former stage, innovator should make upgrade decision based on upgrade revenue and network effects generated by supporting firms. That means innovator should foreclose potential competition in upgrade if upgrade monopoly brings much revenue to innovator, or innovator should establish and enlarge supporting firm base in latter phase out of network effects.