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Subsidizing new technology adoption in a Stackelberg duopoly: Cases of substitutes and complements

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  • Hattori, Masahiko
  • Tanaka, Yasuhito

Abstract

Economic growth requires that firms adopt new technologies. However, it may be insufficient in less competitive industries from the social welfare point of view. In this case, a government subsidy is necessary. We present an analysis of firms' adoption of new technology and government subsidization policy in a Stackelberg duopoly with differentiated goods. The technology itself is free, but each firm must expend a fixed set-up cost, such as training employees. There are several cases related to optimal policies depending on the set-up costs and whether the goods are substitutes or complements. In particular, there are two cases. (1) Social welfare is maximized when only the Stackelberg leader adopts the new technology, but no firm adopts the new technology without a subsidy. Then, the government should subsidize only the leader, which is a discriminatory policy. (Case 5 of Theorem 1 and Case 3-(1)-ii of Theorem 2) (2) Social welfare is maximized when both firms adopt the new technology, but only the leader adopts the new technology without a subsidy. Then, the government should subsidize only the follower. This policy is not discriminatory because adoption is the dominant strategy for the leader. (Case 2 of Theorem 1)

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  • Hattori, Masahiko & Tanaka, Yasuhito, 2016. "Subsidizing new technology adoption in a Stackelberg duopoly: Cases of substitutes and complements," MPRA Paper 71044, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:71044
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    References listed on IDEAS

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    Cited by:

    1. Masahiko Hattori & Yasuhito Tanaka, 2018. "License and Entry Strategies for an Outside Innovator Under Duopoly with Combination of Royalty and Fixed Fee," Journal of Industry, Competition and Trade, Springer, vol. 18(4), pages 485-502, December.
    2. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "Royalty and license fee under vertical differentiation in oligopoly with or without entry of innovator: Two-step auction," MPRA Paper 78859, University Library of Munich, Germany.
    3. Masahiko Hattori & Yasuhito Tanaka, 2018. "License and Entry Decisions for a Firm with a Cost Advantage in an International Duopoly under Convex Cost Functions," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 14(1), pages 1-31, February.
    4. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "Vertical differentiation in oligopoly and license fees when outside innovator can enter the market: Two-step auction," MPRA Paper 78987, University Library of Munich, Germany.
    5. Dmitry B. Rokhlin & Gennady A. Ougolnitsky, 2024. "A Simple Model for Targeting Industrial Investments with Subsidies and Taxes," Mathematics, MDPI, vol. 12(6), pages 1-18, March.
    6. Masahiko Hattori & Yasuhito Tanaka, 2017. "License or Entry in Duopoly with Quality Improving Innovation: Alternative Definitions of License Fee," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 13(1), pages 1-26, February.
    7. Masahiko Hattori & Yasuhito Tanaka, 2021. "License and entry strategies for an outside innovator in Stackelberg duopoly with royalty and fixed fee under vertical differentiation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(3), pages 234-257, September.
    8. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "License and entry strategies for outside innovator in duopoly," MPRA Paper 76444, University Library of Munich, Germany.
    9. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "License and entry strategies for an outside innovator in duopoly with combination of royalty and fixed fee under vertical differentiation," MPRA Paper 78856, University Library of Munich, Germany.
    10. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "Royalty and license fee under oligopoly with or without entry of innovator: Two-step auction," MPRA Paper 78858, University Library of Munich, Germany.

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    More about this item

    Keywords

    Stackelberg duopoly and adoption of new technology and subsidization and sub-game perfect equilibrium;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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