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Endogenous transportation technology in a Cournot differential game with intraindustry trade

  • Colombo, Luca
  • Lambertini, Luca
  • Mantovani, Andrea

We investigate a dynamic Cournot duopoly with intraindustry trade, where firms invest in R&D to reduce the level of iceberg transportation costs. We adopt both open-loop and closed-loop equilibrium concepts, showing that a unique (saddle point) steady state exists in both cases. In the open-loop model, optimal investments and the resulting efficiency of transportation technology are independent of the relative size of the two countries. On the contrary, in the closed-loop case firms' R&D incentives are driven by the relative size of the two countries. Policy implications are also evaluated.

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Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 21 (2009)
Issue (Month): 2 (March)
Pages: 133-139

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Handle: RePEc:eee:japwor:v:21:y:2009:i:2:p:133-139
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505557

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  12. Barbara J. Spencer & James A. Brander, 1982. "Strategic Commitment with R&D: The Symmetric Case," Working Papers 516, Queen's University, Department of Economics.
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