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.
Dynamic Hotelling Duopoly with Linear Transportation Costs / L. Lambertini. - In: OPTIMAL CONTROL APPLICATIONS & METHODS. - ISSN 0143-2087. - STAMPA. - 33:(2012), pp. 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.