Incentive to Reduce Cost under Incomplete Information
AbstractI examine how ex ante symmetric firms that compete in prices strategically decide to invest in research and development of cost-reducing technology when the rival firm and the consumers are not aware of the actual outcome of the investment. I also compare the strategic incentive to invest and market outcomes under incomplete information with that of the full information. I find that equilibrium investment under incomplete information with unobservable investment is same as that of (symmetric) full information equilibrium and is also socially optimal.
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Bibliographic InfoPaper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2013-10.
Date of creation: Aug 2013
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More information through EDIRC
Cost-reducing technology; Duopoly; Incomplete information; Price competition; Strategic investment;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-31 (All new papers)
- NEP-CDM-2013-08-31 (Collective Decision-Making)
- NEP-COM-2013-08-31 (Industrial Competition)
- NEP-CTA-2013-08-31 (Contract Theory & Applications)
- NEP-REG-2013-08-31 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
- Routledge, Robert R., 2010. "Bertrand competition with cost uncertainty," Economics Letters, Elsevier, vol. 107(3), pages 356-359, June.
- Thomas, Charles J., 1997. "Disincentives for cost-reducing investment," Economics Letters, Elsevier, vol. 57(3), pages 359-363, December.
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