A differential game with investment in transport and communication R&D

We analyse R&D activity in transport and communication technology (TCRD) in a differential game where firms compete, alternatively, in quantities or prices. Transport and communication costs are of the iceberg type. Firms invest in TCRD to increase the net amount of the product that reaches consumers. We derive subgame perfect equilibria, and show that price competition yields the socially optimal investment, while Cournot competition involves excess investment and lower outputs.