R&D Competition in an Asymmetric Cournot Duopoly: The Welfare Effects of Catch-Up by the Laggard Firm
AbstractThe substantial within-industry variation in firm productivity typically observed in the data suggests that there is ample scope for catch-up by laggard firms. We analyse the normative effects of such catch-up. In the short run, where firms’ process technologies are fixed, catch-up can reduce social welfare if the initial unit-cost gap between firms is sufficiently large (the Lahiri/Ono effect). However, in the long run, where firms invest in process R&D to maximize profits, social welfare jumps upwards following catch-up if it causes the major firm’s R&D spending lead to grow. Both qualitative insights appear quite general.
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Bibliographic InfoPaper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2012_05.
Date of creation: Apr 2012
Date of revision: Apr 2012
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asymmetric duopoly; catch-up; social welfare; process R&D.;
Find related papers by JEL classification:
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-08 (All new papers)
- NEP-BEC-2012-07-08 (Business Economics)
- NEP-COM-2012-07-08 (Industrial Competition)
- NEP-IND-2012-07-08 (Industrial Organization)
- NEP-INO-2012-07-08 (Innovation)
- NEP-TID-2012-07-08 (Technology & Industrial Dynamics)
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CEP Discussion Papers
dp0649, Centre for Economic Performance, LSE.
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