Delegation vs Cost-Reducing R&D in a Cournot Duopoly

Luca Lambertini () and G. Primavera

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We describe a duopoly model where stockholders assess the relative profitability of delegation versus process innovation. Delegation may not be a dominant strategy. When it is, the game is not necessarily a prisoners dilemma. Our model yields several equilibria where at least one firm remains entrepreneurial and finds it preferable to undertake cost-reducing R&D activities. Then, we introduce the possibility of using delegation and cost-reducing R&D jointly. The use of R&D investment by entrepreneurial firms is a dominated strategy, so that firms always separate ownership from control, while they don t necessarily combine delegation with process innovation.

Date: 2000
New Economics Papers: this item is included in nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:377

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