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R&D Incentives under Bertrand Competition: A Differential Game

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  • R. Cellini
  • L. Lambertini

Abstract

We investigate dynamic R&D for process innovation in an oligopoly where firms invest in cost-reducing activities. We focus on the relationship between R&D intensity and market structure, proving that the industry R&D invest- ment monotonically increases in the number of firms. This result contradicts the established wisdom acquired from static games on the same topic. We also prove that, if competition is suficiently tough, any increase in product substitutability reduces R&D efforts.

Suggested Citation

  • R. Cellini & L. Lambertini, 2004. "R&D Incentives under Bertrand Competition: A Differential Game," Working Papers 519, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:519
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    1. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-1137, December.
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    Cited by:

    1. Masahiko Hattori & Yasuhito Tanaka, 2019. "General analysis of dynamic oligopoly with sticky price," Economics Bulletin, AccessEcon, vol. 39(4), pages 2990-2998.
    2. Michael Peneder & Martin Woerter, 2014. "Competition, R&D and innovation: testing the inverted-U in a simultaneous system," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 653-687, July.
    3. Raymond De Bondt & Jan Vandekerckhove, 2012. "Reflections on the Relation Between Competition and Innovation," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 7-19, March.
    4. Masahiko Hattori & Yasuhito Tanaka, 2021. "Advertising in an oligopoly with differentiated goods under general demand and cost functions: A differential game approach," Manchester School, University of Manchester, vol. 89(6), pages 619-639, December.
    5. Masahiko Hattori & Yasuhito Tanaka, 2022. "Dynamic analysis of R&D in an oligopoly under general demand and cost functions," OPSEARCH, Springer;Operational Research Society of India, vol. 59(2), pages 694-710, June.
    6. Cátia Felisberto, 2012. "The Relationship Between Competition and Incumbent’s Innovation," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 21-46, March.
    7. Cátia Felisberto, 2013. "Liberalisation, competition and innovation in the postal sector," Empirical Economics, Springer, vol. 44(3), pages 1407-1434, June.

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