Dynamic Hotelling Duopoly with Linear Transportation Costs

Luca Lambertini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: I investigate a spatial duopoly model with linear transportation costs as a differential game where product differentiation is the result of firms R&D investments. Two related results obtain, i.e., (i) the steady state R&D investment (product differentiation) is negatively (positively) related to the cost of capital and time discounting; and (ii) if time discounting and the cost of capital are sufficiently high, the amount of differentiation observed in steady state is sufficiently large to ensure the existence of a unique pure-strategy price equilibrium with prices above marginal cost.

Date: 2001
New Economics Papers: this item is included in nep-geo
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:398

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