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Cournot-Bertrand comparison under R&D competition: Output versus R&D subsidies

Jiaqi Chen and Sang-Ho Lee ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study compares Cournot and Bertrand firms with research and development (R&D) competition under government policies between output and R&D subsidies. We demonstrate that firms invest more (less) in R&D and the government grants more (less) subsidies under Cournot than Bertrand competition with output (R&D) subsidy policies. We also reveal that both competition modes yield the same welfare with output subsidy while Bertrand yields higher welfare than Cournot with R&D subsidy irrespective of product substitutability. Finally, we show that firms’ profits and social welfare are always higher under output subsidies in Cournot competition, while they can be higher under R&D subsidies in Bertrand competition if the product substitutability is high and the firm’s R&D investment is efficient.

Keywords: Cournot; Bertrand; R&D investment; Output Subsidy; R&D subsidy (search for similar items in EconPapers)
JEL-codes: H21 L13 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-com, nep-cse and nep-knm
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