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Dynamic Games of R&D Competition in a Differentiated Duopoly

Changying Li () and Jianhu Zhang

Journal of Institutional and Theoretical Economics (JITE), 2013, vol. 169, issue 4, 660-679

Abstract: Based on a Hotelling-type model, this paper analyzes a differential game where two firms engage in quality-enhancing research and development (R&D). The analysis is formulated in terms of open-loop and feedback solutions. We find that the open-loop stationary levels of R&D and quality are socially efficient. Moreover, compared to open-loop strategies, feedback strategies lead to higher stationary levels of prices and profits, but lower levels of R&D, quality, consumer surplus, and social welfare. In addition, compared to the social optimum, both open-loop and feedback strategies yield a closer stationary distance between the two firms.

JEL-codes: C73 L13 D43 D92 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1628/093245613X671184

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