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Dynamic Hotelling Duopoly with Linear Transportation Costs

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  • L. Lambertini

Abstract

I investigate a spatial duopoly model with linear transportation costs as a differential game where product differentiation is the result of firms R&D investments. Two related results obtain, i.e., (i) the steady state R&D investment (product differentiation) is negatively (positively) related to the cost of capital and time discounting; and (ii) if time discounting and the cost of capital are sufficiently high, the amount of differentiation observed in steady state is sufficiently large to ensure the existence of a unique pure-strategy price equilibrium with prices above marginal cost.

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  • L. Lambertini, 2001. "Dynamic Hotelling Duopoly with Linear Transportation Costs," Working Papers 398, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:398
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