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Cournot-Bertrand comparison under R&D competition: Output versus R&D subsidies

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  • Chen, Jiaqi
  • Lee, Sang-Ho

Abstract

This study compares Cournot and Bertrand firms with research and development (R&D) competition under government policies between output and R&D subsidies. We demonstrate that firms invest more (less) in R&D and the government grants more (less) subsidies under Cournot than Bertrand competition with output (R&D) subsidy policies. We also reveal that both competition modes yield the same welfare with output subsidy while Bertrand yields higher welfare than Cournot with R&D subsidy irrespective of product substitutability. Finally, we show that firms’ profits and social welfare are always higher under output subsidies in Cournot competition, while they can be higher under R&D subsidies in Bertrand competition if the product substitutability is high and the firm’s R&D investment is efficient.

Suggested Citation

  • Chen, Jiaqi & Lee, Sang-Ho, 2021. "Cournot-Bertrand comparison under R&D competition: Output versus R&D subsidies," MPRA Paper 107949, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:107949
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    1. Lili Xu & Yidan Zhang & Sang‐Ho Lee, 2024. "Effects of partial passive ownership in a successive endogenous timing game with R&D spillovers," Bulletin of Economic Research, Wiley Blackwell, vol. 76(1), pages 283-297, January.
    2. Jinglve Wang & Hongping Yuan, 2023. "Deciphering the Innovation Subsidy Puzzle: Government Choices amid Supply Chain Encroachment," Mathematics, MDPI, vol. 11(23), pages 1-38, November.

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    More about this item

    Keywords

    Cournot; Bertrand; R&D investment; Output Subsidy; R&D subsidy;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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