Endogenous choice of capacity and product innovation in a differential duopoly
We model a symmetric duopoly where firms choose whether to be quantity setters or price setters by deciding the optimal capacity; undertake R&D activity to determine the degree of differentiation; and finally compete in the market. Two games are proposed, where investment decisions follow different sequences. We assess price and quantity decisions, finding a set of equilibria where the choice of the market variable is affected by both technological commitments. As a result, the acquired wisdom that quantity setting is a dominant strategy for firms, while price setting is a dominant strategy from a social standpoint, may not be confirmed.
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- Flavio Delbono & Vincenzo Denicolo, 1991.
"Incentives to Innovate in a Cournot Oligopoly,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 106(3), pages 951-961.
- F. Delbono & V. Denicolo, 1988. "Incentives to Innovate in a Cournot Oligopoly," Working Papers 44, Dipartimento Scienze Economiche, Universita' di Bologna.
- Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
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- Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Discussion Paper 1991-36, Tilburg University, Center for Economic Research.
- Osborne, Martin J. & Pitchik, Carolyn, 1986. "Price competition in a capacity-constrained duopoly," Journal of Economic Theory, Elsevier, vol. 38(2), pages 238-260, April.
- Osborne, Martin J. & Pitchik, Carolyn, 1983. "Price Competition in a Capacity-Constrained Duopoly," Working Papers 83-08, C.V. Starr Center for Applied Economics, New York University.
- Dan Kovenock & Raymond J. Deneckere, 1996. "Bertrand-Edgeworth duopoly with unit cost asymmetry (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 1-25.
- James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
- Levitan, Richard & Shubik, Martin, 1972. "Price Duopoly and Capacity Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-122, February.Full references (including those not matched with items on IDEAS)
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