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A small firm leads to curious outcomes: Social surplus, consumer surplus, and R&D activities

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  • Toshihiro Matsumura
  • Noriaki Matsushima

Abstract

This paper investigates an asymmetric duopoly model with a Hotelling line. We find that helping a small (minor) firm can reduce both social and consumer surplus. This makes a sharp contrast to existing works showing that helping minor firms can reduce social surplus but always improves consumer surplus. We also investigate R&D competition. We find that a minor firm may engage in R&D more intensively than a major firm in spite of economies of scale in R&D activities.

Suggested Citation

  • Toshihiro Matsumura & Noriaki Matsushima, 2009. "A small firm leads to curious outcomes: Social surplus, consumer surplus, and R&D activities," ISER Discussion Paper 0742, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0742
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    References listed on IDEAS

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