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R&D in transport and comunication in a Cournot duopoly

Listed author(s):
  • L. Lambertini
  • A. Mantovani
  • G. Rossini

We analyse R&D activity in transport and communication technology (TCRD), in a Cournot duopoly. Transport and communication costs are of the iceberg type, i.e., using up some portion of the product along its path to the final buyer. Firms invest in TCRD to increase the net amount of the product that reaches consumers. A variety of equilibria arise as a result of the different levels of TCRD efficiency. If TCRD’s productivity is high, the game is a prisoner’s dilemma where both firms invest in TCRD. As the e¢ciency of the TCRD progressively fades we come across first a chicken game and, then, at lower e¢ciency, a game with an equilibrium in dominant strategies where the profits are at the highest. Social welfare is maximised by market strategies only when TCRD is very efficient.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 401.

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Date of creation: 2001
Handle: RePEc:bol:bodewp:401
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  1. Lambertini, Luca & Poddar, Sougata & Sasaki, Dan, 1998. "Standardization and the stability of collusion," Economics Letters, Elsevier, vol. 58(3), pages 303-310, March.
  2. 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.
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