Incentive to Reduce Cost under Incomplete Information
I examine how ex ante symmetric firms that compete in prices strategically decide to invest in research and development of cost-reducing technology when the rival firm and the consumers are not aware of the actual outcome of the investment. I also compare the strategic incentive to invest and market outcomes under incomplete information with that of the full information. I find that equilibrium investment under incomplete information with unobservable investment is same as that of (symmetric) full information equilibrium and is also socially optimal.
|Date of creation:||Aug 2013|
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- Thomas, Charles J., 1997. "Disincentives for cost-reducing investment," Economics Letters, Elsevier, vol. 57(3), pages 359-363, December.
- Routledge, Robert R., 2010. "Bertrand competition with cost uncertainty," Economics Letters, Elsevier, vol. 107(3), pages 356-359, June.
- Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
- Jos Jansen, 2010. "STRATEGIC INFORMATION DISCLOSURE AND COMPETITION FOR AN IMPERFECTLY PROTECTED INNOVATION -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 349-372, 06.
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