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Welfare Analysis of Cournot and Bertrand Competition With(out) Investment in R & D

Tondji, Jean-Baptiste (2016): Welfare Analysis of Cournot and Bertrand Competition With(out) Investment in R & D.

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Abstract

I consider the model of a differentiated duopoly with process R&D when goods are either substitute, complements or independent. I propose a non-cooperative two-stage game with two firms producing differentiated goods. In the first stage, firms decide their technologies and in the second stage, they compete in quantities or prices. I evaluate the social welfare within a framework of Cournot and Bertrand competition models with or without investment in research and development. I prove that the Cournot price can be lower than Bertrand price when the R&D technology is relatively inefficient; thus, Cournot market structure can generate larger consumer's surplus and welfare.

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