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Dynamic Efficiency of Product Market Competition

Jeroen Hinloopen and Jan Vandekerckhove ()
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Jan Vandekerckhove: Kath. Universiteit Leuven

No 07-097/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We consider the efficiency of Cournot and Bertrand equilibria in a duopoly with substitutable goods where firms invest in process R&D. Under Cournot competition firms always invest more in R&D than under Bertrand competition. More importantly, Cournot competition yields lower prices than Bertrand competition when the R&D production process is efficient, when spillovers are substantial, and when goods are not too differentiated. The range of cases for which total surplus under Cournot competition exceeds that under Bertrand competition is even larger as competition over quantities always yields the largest producers' surplus.

Keywords: Bertrand competition; Cournot competition; process R&D; efficiency (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2007-12-17
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Citations: View citations in EconPapers (4)

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