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Price vs Quantity in a Duopoly with Technological Spillovers: A Welfare Re-Appraisal

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  • L. Lambertini
  • A. Mantovani

Abstract

We analyse the problem of the choice of the market variable in a model where firms activate R&D investments for process innovation. We establish that (i) firms always choose the Cournot behaviour; and (ii) there exists a set of the relevant parameters where a benevolent social planner prefers quantity setting to price setting. This happens when the marginal cost of R&D activities is relatively low while technological externalities are relatively high. In this situation, the conflict between social and private preferences over the type of market behaviour disappears.

Suggested Citation

  • L. Lambertini & A. Mantovani, 2000. "Price vs Quantity in a Duopoly with Technological Spillovers: A Welfare Re-Appraisal," Working Papers 389, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:389
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    References listed on IDEAS

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    1. Flavio Delbono & Vincenzo Denicolo, 1991. "Incentives to Innovate in a Cournot Oligopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 951-961.
    2. 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.
    3. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    4. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 395-410.
    5. 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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    Cited by:

    1. Roberto Cellini & Luca Lambertini, 2011. "R&D Incentives Under Bertrand Competition: A Differential Game," The Japanese Economic Review, Japanese Economic Association, vol. 62(3), pages 387-400, September.

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