Endogenous choice of capacity and product innovation in a differential duopoly

Luca Lambertini () and G. Rossini

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We model a symmetric duopoly where firms choose whether to be quantity setters or price setters by deciding the optimal capacity; undertake R&D activity to determine the degree of differentiation; and finally compete in the market. Two games are proposed, where investment decisions follow different sequences. We assess price and quantity decisions, finding a set of equilibria where the choice of the market variable is affected by both technological commitments. As a result, the acquired wisdom that quantity setting is a dominant strategy for firms, while price setting is a dominant strategy from a social standpoint, may not be confirmed.

Date: 1998-05
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:320

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