Cournot-Bertrand comparison under R&D competition: Output versus R&D subsidies

Chen, Jiaqi and Lee, Sang-Ho (2021): Cournot-Bertrand comparison under R&D competition: Output versus R&D subsidies.

Abstract

This study compares Cournot and Bertrand firms with research and development (R&D) competition under government policies between output and R&D subsidies. We demonstrate that firms invest more (less) in R&D and the government grants more (less) subsidies under Cournot than Bertrand competition with output (R&D) subsidy policies. We also reveal that both competition modes yield the same welfare with output subsidy while Bertrand yields higher welfare than Cournot with R&D subsidy irrespective of product substitutability. Finally, we show that firms’ profits and social welfare are always higher under output subsidies in Cournot competition, while they can be higher under R&D subsidies in Bertrand competition if the product substitutability is high and the firm’s R&D investment is efficient.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cournot; Bertrand; R&D investment; Output Subsidy; R&D subsidy
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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