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Dynamic analysis of discontinuous best response with innovation

Fabio Lamantia, Mario Pezzino () and Fabio Tramontana

Journal of Economic Dynamics and Control, 2018, vol. 91, issue C, 120-133

Abstract: Starting from the static analysis in Eckert et al. (2017), we study a Cournot duopoly where firms can decide to incur fixed costs in activities that improve their competitiveness (i.e. product development or process innovation). Innovation costs generate discontinuities in the firms quantity best response functions and, in turn, a variety of equilibrium configurations, including multiple equilibria. We provide a dynamic global analysis of the equilibria and show the way in which firms’ initial expectations regarding the rivals level of output are crucial in defining the configuration of the long run equilibrium.

Keywords: Process innovation; Oligopolistic competition; Discontinuous best response functions; Global analysis; Learning (search for similar items in EconPapers)
JEL-codes: C73 D21 D43 (search for similar items in EconPapers)
Date: 2018
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