Subsidy or tax policy for new technology adoption in duopoly with quadratic and linear cost functions

Hattori, Masahiko and Tanaka, Yasuito (2015): Subsidy or tax policy for new technology adoption in duopoly with quadratic and linear cost functions. Forthcoming in: Economics Bulletin

Abstract

We present an analysis about subsidy (or tax) policy for adoption of new technology in a duopoly with a homogeneous good. Technology itself is free. However, firms must expend fixed set-up costs for adoption of new technology, for example, education costs of their staffs. We assume linear demand function, and consider two types of cost functions of firms. Quadratic cost functions and linear cost functions. There are various cases of optimal policies depending on the level of the set-up cost and the forms of cost functions. In particular, under linear cost functions there is the following case.

The social welfare is maximized when one firm adopts new technology, however, both firms adopt new technology without subsidy nor tax. Then, the government should impose taxes on one firm or both firms.

Under quadratic cost functions there exists no taxation case. There are subsidization cases both under quadratic and linear cost functions.

• Item Type: MPRA Paper
• Language: English
• Keywords: subsidy or tax for new technology adoption, duopoly, quadratic cost, linear cost
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

References

Boone, J. (2001), ``Intensity of competition and the incentive to innovate'', International Journal of Industrial Organization, 19, pp.705-726.

Elberfeld, W. and Nti, K. O. (2004), ``Oligopolistic competition and new technology adoption under uncertainty'', Journal of Economics, 82, pp. 105-121.

Filippini, L. (2005), ``Licensing contract in a Stackelberg model'', The Manchester School, 73, pp. 582-598.

Hattori, M. and Y. Tanaka (2014), ``Incentive for adoption of new technology in duopoly under absolute and relative profit maximization'', Economics Bulletin, 34. pp. 2051-2059.

Kabiraj, T. (2004), ``Patent licensing in a leadership structure'', The Manchester School, 72, pp.188-205.

Kabiraj, T. (2005), ``Technology transfer in a Stackelberg structure: Licensing contracts and welfare'', The Manchester School, 73, pp.1-28.

Kamien, T. and Tauman, Y. (1986), ``Fees versus royalties and the private value of a patent'', Quarterly Journal of Economics, 101, pp.471-492.

Katz, M. and Shapiro, C. (1985), ``On the licensing of innovations'', Rand Journal of Economics, 16, pp. 504-520.

La Manna M. (1993), ``Asymmetric Oligopoly and Technology Transfers'', Economic Journal, 103, pp.436-443.

Matsumura, T., Matsushima, N. and Cato, S. (2013), ``Competitiveness and R\&D competition revisited'', Economic modelling, 31, pp.541-547.

Pal, R. (2010), ``Technology adoption in a differentiated duopoly: Cournot versus Bertrand'', Research in Economics, 64, pp. 128-136.

Sen, D. and Tauman, Y. (2007), ``General licensing schemes for a cost-reducing Innovation'', Games and Economic Behavior, 59, pp.163-186.

Wang, X. H. and Yang, B. Z. (2004), ``On technology licensing in a Stackelberg duopoly'', Australian Economic Papers, 43, pp. 448-458.

Watanabe N. and Muto, S. (2008), ``Stable profit sharing in a patent licensing game: general bargaining outcomes'', International Journal of Game Theory, 37, pp.505-523.

Zhang, Y., Mei, S. and Zhong, W. (2014), ``New technology adoption in a Cournot oligopoly with spillovers'', Journal of Economics, 112, pp. 115-136.