Cournot And Bertrand Prices In A Model Of Differentiated Duopoly With R&D (original) (raw)

In A Model Of Differentiated Duopoly With R&D

2000

We construct a model of differentiated duopoly with process R&D when goods are substitutes. In the first stage firms decide their technologies (i.e., the average costs of production) and in the second stage they compete in quantities or prices. We have shown that not only the Cournot firms invest a larger amount on R&D than the Bertrand firms, but, contrary

MARKET COMPETITION, R&D AND FIRM PROFITS IN ASYMMETRIC OLIGOPOLY*

The Journal of Industrial Economics, 2011

We investigate a Cournot model with strategic R&D investments wherein efficient low‐cost firms compete against less efficient high‐cost firms. We find that an increase in the number of high‐cost firms can stimulate R&D by the low‐cost firms, while it always reduces R&D by the high‐cost firms. More importantly, this force can be strong enough to compensate for the loss that

Dynamic Efficiency of Product Market Competition

2007

We consider the efficiency of Cournot and Bertrand equilibria in a duopoly with substitutable goods where firms invest in process R&D. Under Cournot competition firms always invest more in R&D than under Bertrand competition. More importantly, Cournot competition yields lower prices than Bertrand competition when the R&D production process is efficient, when spillovers are substantial, and when goods are not too differentiated. The range of cases for which total surplus under Cournot competition exceeds that under Bertrand competition is even larger as competition over quantities always yields the largest producers' surplus.

Cournot and Bertrand competition with asymmetric costs in a mixed duopoly revisited

2012

We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, regardless of whether the goods are substitutes or complements, if the degree of public firm's inefficiency is sufficiently small, there exists a dominant strategy for both public and private firms that choose Bertrand competition, while there exists a dominant strategy only for the private firm that chooses Bertrand competition if the degree of inefficiency is sufficiently large. Consequently, we show that regardless of the nature of goods, (i) social welfare under Bertrand competition is determined in equilibrium, if the degree of public firm's inefficiency is sufficiently small; and (ii) if the degree of its inefficiency is sufficiently large, social welfare under which the private firm sets its price and the public firm sets its quantity is determined in equilibrium. Moreover, the ranking of a private firm's profit is not reversed.

Price and Quantity Competition in a Differentiated Duopoly

Rand Journal of Economics, 1984

This paper analyzes the noncooperative game on the choice of strategic variable to set in duopoly in the presence of an upstream market for the input. For the case of labor input, it shows that if the input price (wage) is the result of decentralized firm-union bargain, a duopoly producing substitutes may compete either in the quantity space or in the price space, depending upon the distribution of bargaining power in the wage negotiation and the union's relative preference over the wage. For the case of input suppliers as profit-maximizing firms, it shows that a vertically differentiated duopoly may compete either in the quantity space or in the mixed strategy setting where the high-quality firm plays price and the low-quality firm plays quantity, depending upon the extent of substitutability, the degree of vertical product differentiation and the distribution of bargaining power in the input price negotiation. use the linear duopoly model with differentiated goods introduced in Dixit (1979).

Downstream R&D Rivalry with Spillovers and Discriminatory Input Pricing

Australian Economic Papers, 2008

This paper examines how discriminatory input pricing by the upstream monopolist affects the R&D choices of downstream duopolists in the presence of R&D spillovers. We show that the monopoly supplier can benefit from a precommitment to uniform pricing because under uniform pricing the downstream firms invest more in R&D, leading to larger output and thus benefiting the supplier. When R&D spillovers are sufficiently large, the downstream firms are also better off under uniform pricing. Moreover, social welfare is always higher under uniform pricing. I. I n t r o d u c t i o n This paper combines the literature on R&D choices and input-market price discrimination in an analysis of how the profits of the upstream and downstream firms and social welfare are affected by R&D spillovers, R&D investment, and input pricing schemes. R&D spillovers are frequently invoked in empirical and theoretical research related to R&D, and the existing literature has shown that R&D spillovers are prevalent and pivotal. The paper is related to the literature on R&D competition and/or cooperation in oligopoly with R&D spillovers, mainly focused on how R&D efforts are affected by the level of R&D spillovers. 1 More explicitly, the focus of the paper is on strategic R&D investment games and on process innovation to reduce production costs. In a seminal paper, d'Aspremont and Jacquemin (1988), henceforth AJ, show that cooperative R&D levels exceed non-cooperative R&D levels when the degree of spillovers exceeds 0.5, and vice versa. Many subsequent papers have adopted their framework with modifications to analyse other related issues. For example, Kamien et al. (1992), henceforth KMZ, extend the AJ model to more firms than two, a general concave R&D production function, differentiated products, and Bertrand price completion; 2 Suzumura (1992) extends the AJ model to general demand function. There are also many papers considering different issues, such as product innovation, vertical cooperation, international research joint venture, and absorptive capacity. 3

Licensing and R&D Investment of Duopolistic Firms with Partially Complementary Technologies*

2005

We consider research and development (R&D) investment competition between duopolistic firms that independently invest in two complementary technologies to produce their products. By “partially complementary technologies”, we mean that each firm can produce the goods without both technologies but they incur more redundant costs than with both technologies. We derive the investment competition equilibria in R&D of the two technologies with and without a licensing system. By comparing R&D investment levels in the two equilibria, we show that the licensing system discourages R&D investment in most cases; however, it encourages R&D investment in some cases when the duopolistic firms can produce the goods using both technologies. We also show that (cross-) licensing increases the expected social surplus at the symmetric equilibrium.

Cost Reduction, Competitive Pressure and Firms' Optimal R&D Strategies in a Duopolistic Industry

Review of Industrial Organization, 1997

This paper deals with a duopolistic industry where firms are engaged in cost-reducing R&D activity in order to maximize their market shares. Firms' R&D competition is characterized as a dynamic noncooperative feedback game where the optimal strategies are affected by the extra-industry R&D activity and the degree of intra-industry spillovers. Numerical simulations highlight the importance of the assumptions on the

Licensing and R&D Investment of Duopolistic Firms with Partially Complementary Technologies

We consider research and development (R&D) investment competition between duopolistic firms that independently invest in two complementary technologies to produce their products. By "partially complementary technologies", we mean that each firm can produce the goods without both technologies but they incur more redundant costs than with both technologies. We derive the investment competition equilibria in R&D of the two technologies with and without a licensing system. By comparing R&D investment levels in the two equilibria, we show that the licensing system discourages R&D investment in most cases; however, it encourages R&D investment in some cases when the duopolistic firms can produce the goods using both technologies. We also show that (cross-) licensing increases the expected social surplus at the symmetric equilibrium.