Transportation Technologyin a Duopoly Model of International Trade
In this paper I will evaluate the role of R&D investment in transport and communication in a duopoly with trade. I will in fact consider the strategic behavior of two firms located in two different countries. They can activate R&D investments in order to improve the technology of the transportation process. Transport and communication (TC) costs are of iceberg type, i.e. only a fraction of the goods shipped abroad reaches the foreign market. I will then study a game in which firms may priorly commit themselves to a certain level of R&D investment and then they play in the market. As for the market game, I will consider both a Cournot duopoly with homogeneous products and a Bertrand duopoly with differentiated goods. In both models, my analysis suggests that firms are willing to invest in transport and communication technology when such a strategy turns out to be efficient, i.e. when it does not imply an excessive cost. More precisely, a variety of equilibria will arise as a result of different levels of TC r&D efficiency. If the cost is low the game has an equilibrium in dominant strategies where both firms invest in TC and maximize the aggregate profit. As the cost increases, the game becomes a prisoner`s dilemma; both firms still invest in Tc but they do not reach the Pareto-efficient solution. For even higher levels of the cost required, the game shows an equilibrium in dominant strategies where no firms finances TC R&D and the aggregate profit is maximized.
|Date of creation:||2001|
|Contact details of provider:|| Postal: Piazza Scaravilli, 2, and Strada Maggiore, 45, 40125 Bologna|
Phone: +39 051 209 8019 and 2600
Fax: +39 051 209 8040 and 2664
Web page: http://www.dse.unibo.it
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Krugman, Paul & Venables, Anthony J, 1990. "Integration and the Competitiveness of Peripheral Industry," CEPR Discussion Papers 363, C.E.P.R. Discussion Papers.
- Barbara J. Spencer & James A. Brander, 1982.
"Strategic Commitment with R&D: The Symmetric Case,"
516, Queen's University, Department of Economics.
- Krugman, Paul, 1991.
"Increasing Returns and Economic Geography,"
Journal of Political Economy,
University of Chicago Press, vol. 99(3), pages 483-499, June.
- L. Lambertini & A. Mantovani & G. Rossini, 2001. "R&D in transport and comunication in a Cournot duopoly," Working Papers 401, Dipartimento Scienze Economiche, Universita' di Bologna.
- Martin, Philippe & Rogers, Carol Ann, 1995.
"Industrial location and public infrastructure,"
Journal of International Economics,
Elsevier, vol. 39(3-4), pages 335-351, November.
- Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 495-510, July.
- Dos Santos Ferreira, Rodolphe & Thisse, Jacques-Francois, 1996.
"Horizontal and vertical differentiation: The Launhardt model,"
International Journal of Industrial Organization,
Elsevier, vol. 14(4), pages 485-506, June.
- Dos Santos Ferreira, R. & Thisse, J.-F., "undated". "Horizontal and vertical differentiation: The Launhardt model," CORE Discussion Papers RP 1216, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Freeman, Chris & Louca, Francisco, 2001.
"As Time Goes By: From the Industrial Revolutions to the Information Revolution,"
Oxford University Press, number 9780199241071, December.
- Freeman, Chris & Louca, Francisco, 2002. "As Time Goes By: From the Industrial Revolutions to the Information Revolution," OUP Catalogue, Oxford University Press, number 9780199251056, December.
When requesting a correction, please mention this item's handle: RePEc:bol:bodewp:417. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dipartimento Scienze Economiche, Universita' di Bologna)
If references are entirely missing, you can add them using this form.