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A small firm leads to curious outcomes: Social surplus, consumer surplus, and R&D activities

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  • Toshihiro Matsumura
  • Noriaki Matsushima

Abstract

This paper investigates an asymmetric duopoly model with a Hotelling line. We find that helping a small (minor) firm can reduce both social and consumer surplus. This makes a sharp contrast to existing works showing that helping minor firms can reduce social surplus but always improves consumer surplus. We also investigate R&D competition. We find that a minor firm may engage in R&D more intensively than a major firm in spite of economies of scale in R&D activities.

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File URL: http://www.iser.osaka-u.ac.jp/library/dp/2009/DP0742.pdf
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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0742.

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Date of creation: Jun 2009
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Handle: RePEc:dpr:wpaper:0742

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  1. Sajal Lahiri & Yoshiyasu Ono, 1997. "Asymmetric oligopoly, international trade, and welfare: a synthesis," Journal of Economics, Springer, vol. 65(3), pages 291-310, October.
  2. Lahiri, Sajal & Ono, Yoshiyasu, 1998. "Foreign Direct Investment, Local Content Requirement, and Profit Taxation," Economic Journal, Royal Economic Society, vol. 108(447), pages 444-57, March.
  3. Mark Rogers, 2004. "Networks, Firm Size and Innovation," Small Business Economics, Springer, vol. 22(2), pages 141-153, 03.
  4. Rajeev K. Tyagi, 2000. "Sequential Product Positioning Under Differential Costs," Management Science, INFORMS, vol. 46(7), pages 928-940, July.
  5. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
  6. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
  7. Minoru Kitahara & Toshihiro Matsumura, 2006. "Realized Cost-Based Subsidies For Strategic R&D Investments With "Ex Ante" And "Ex Post" Asymmetries," The Japanese Economic Review, Japanese Economic Association, vol. 57(3), pages 438-448.
  8. Liang, Wen-Jung & Mai, Chao-Cheng, 2006. "Validity of the principle of minimum differentiation under vertical subcontracting," Regional Science and Urban Economics, Elsevier, vol. 36(3), pages 373-384, May.
  9. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  10. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.
  11. Raphael Thomadsen, 2007. "Product Positioning and Competition: The Role of Location in the Fast Food Industry," Marketing Science, INFORMS, vol. 26(6), pages 792-804, 11-12.
  12. Wang, X. Henry & Zhao, Jingang, 2007. "Welfare reductions from small cost reductions in differentiated oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 173-185, February.
  13. Toshihiro Matsumura & Noriaki Matsushima, 2009. "Cost differentials and mixed strategy equilibria in a Hotelling model," The Annals of Regional Science, Springer, vol. 43(1), pages 215-234, March.
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