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. The range of time discounting wherein the game produces a price equilibrium in pure strategies is wider under the closed loop solution than under the open loop solution.
L. Lambertini (2012). Dynamic Hotelling Duopoly with Linear Transportation Costs. OPTIMAL CONTROL APPLICATIONS & METHODS, 33, 114-126 [10.1002/oca.985].
Dynamic Hotelling Duopoly with Linear Transportation Costs
LAMBERTINI, LUCA
2012
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. The range of time discounting wherein the game produces a price equilibrium in pure strategies is wider under the closed loop solution than under the open loop solution.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.