Dynamic Efficiency of Product Market Competition
AbstractWe 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.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 07-097/1.
Date of creation: 17 Dec 2007
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Bertrand competition; Cournot competition; process R&D; efficiency;
Find related papers by JEL classification:
- 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-2008-02-23 (All new papers)
- NEP-COM-2008-02-23 (Industrial Competition)
- NEP-IND-2008-02-23 (Industrial Organization)
- NEP-IPR-2008-02-23 (Intellectual Property Rights)
- NEP-MIC-2008-02-23 (Microeconomics)
- NEP-TID-2008-02-23 (Technology & Industrial Dynamics)
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