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Is there a U-shaped relation between competition and investment?

  • Sacco, Dario
  • Schmutzler, Armin

We consider a two-stage game with cost-reducing investments followed by a linear differentiated Cournot duopoly. With competition inversely parameterized by the extent of product differentiation, investment in the subgame perfect equilibrium is typically minimal for intermediate levels of competition. Laboratory experiments partly confirm the U-shape in a reduced one-stage version of the game. In the two-stage version, there is no evidence for positive effects of moving from intermediate to intense competition.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 29 (2011)
Issue (Month): 1 (January)
Pages: 65-73

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Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:65-73
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 2000. "Strategic delegation in experimental markets," SFB 373 Discussion Papers 2000,39, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany.
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  9. Oechssler, Jorg & Schuhmacher, Frank, 2004. "The limited liability effect in experimental duopoly markets," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 163-184, February.
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