R&D Competition in an Asymmetric Cournot Duopoly: The Welfare Effects of Catch-Up by the Laggard Firm

Ben Ferrett

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: The substantial within-industry variation in firm productivity typically observed in the data suggests that there is ample scope for catch-up by laggard firms. We analyse the normative effects of such catch-up. In the short run, where firms’ process technologies are fixed, catch-up can reduce social welfare if the initial unit-cost gap between firms is sufficiently large (the Lahiri/Ono effect). However, in the long run, where firms invest in process R&D to maximize profits, social welfare jumps upwards following catch-up if it causes the major firm’s R&D spending lead to grow. Both qualitative insights appear quite general.

Keywords: asymmetric duopoly; catch-up; social welfare; process R&D. (search for similar items in EconPapers)
JEL-codes: D61 L13 O33 (search for similar items in EconPapers)
Date: 2012-04, Revised 2012-04
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-ino and nep-tid
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