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R&D Competition in an Asymmetric Cournot Duopoly: The Welfare Effects of Catch-Up by the Laggard Firm

Author

Listed:
  • Ben Ferrett

    (School of Business and Economics, Loughborough University, UK)

Abstract

The substantial within-industry variation in firm productivity typically observed in the data suggests that there is ample scope for catch-up by laggard firms. We analyse the normative effects of such catch-up. In the short run, where firms’ process technologies are fixed, catch-up can reduce social welfare if the initial unit-cost gap between firms is sufficiently large (the Lahiri/Ono effect). However, in the long run, where firms invest in process R&D to maximize profits, social welfare jumps upwards following catch-up if it causes the major firm’s R&D spending lead to grow. Both qualitative insights appear quite general.

Suggested Citation

  • Ben Ferrett, 2012. "R&D Competition in an Asymmetric Cournot Duopoly: The Welfare Effects of Catch-Up by the Laggard Firm," Discussion Paper Series 2012_05, Department of Economics, Loughborough University, revised Apr 2012.
    • Handle: RePEc:lbo:lbowps:2012_05
    as

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    File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Ferrett_WP2012_5.pdf
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    References listed on IDEAS

    as
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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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