Abstract
We consider the efficiency of Cournot and Bertrand equilibria in a duopoly with substitutable goods where firms invest in process R&D that generates input spillovers. Under Cournot competition firms always invest more in R&D than under Bertrand competition. More importantly, Cournot competition yields lower prices than Bertrand competition when the R&D production process is efficient, when spillovers are substantial, and when goods are not too differentiated. The range of cases for which total surplus under Cournot competition exceeds that under Bertrand competition is even larger as competition over quantities always yields the largest producers’ surplus.
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Acknowledgments
Thanks are due to two anonymous referees, to Thomas Rønde and to seminar participants at the Katholieke Universiteit Leuven, at the University of Amsterdam, at the joint KULeuven/ZEW Workshop on the Economics of Innovation (Mannheim, December 2007), and at the annual conference of the Scottish Economic Society (Perth, April 2008), and European Association for Research in Industrial Economics (Toulouse, September 2008).
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Hinloopen, J., Vandekerckhove, J. Dynamic efficiency of Cournot and Bertrand competition: input versus output spillovers. J Econ 98, 119–136 (2009). https://doi.org/10.1007/s00712-009-0085-8
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DOI: https://doi.org/10.1007/s00712-009-0085-8