Incentive to Reduce Cost under Incomplete Information

Aditi Sengupta

No auwp2013-10, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: I examine how ex ante symmetric firms that compete in prices strategically decide to invest in research and development of cost-reducing technology when the rival firm and the consumers are not aware of the actual outcome of the investment. I also compare the strategic incentive to invest and market outcomes under incomplete information with that of the full information. I find that equilibrium investment under incomplete information with unobservable investment is same as that of (symmetric) full information equilibrium and is also socially optimal.

Keywords: Cost-reducing technology; Duopoly; Incomplete information; Price competition; Strategic investment (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-cdm, nep-com, nep-cta and nep-reg
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