Cournot vs. Bertrand in mixed markets with R&D

Abstract

We investigate the question of endogenous choice of price and quantity competition in a mixed duopoly where both welfare maximising public firm and profit maximising private firm invest in cost-reducing R&D. In contrary to the conventional belief that Cournot competition arises in equilibrium, we find that price competition constitutes equilibrium. We further argue that the results that Cournot profit is strictly higher than Bertrand in standard oligopoly and that the Bertrand profit is strictly higher than Cournot in mixed oligopoly, both hold when the public and private firm engage in R&D. We also find that the public firm is more innovative than the private firm.

Does technology licensing matter for privatization?

“…10 First, in our paper, the initial cost conditions are given exogenously. It is very interesting to endogenize the costs by introducing R&D competition in public and private firms as in Ishibashi and Matsumura (2006) and Basak and Wang (2019). The consideration of R&D competition could yield some interesting results and thus generate important policy implications.…”

Environmental R&D and privatization in a mixed duopoly market

“…A number of studies compare the process (or product) R&D incentives of private and public firms in a mixed duopoly. Nett () found that the public firm is less innovative in process R&D than the private firm, but Nie and Yang () and Basak and Wang () got the opposite conclusion. Xing () thought that the public firm is more willing to take risks in product R&D than the private firm under Cournot competition, but the reverse may be true under Bertrand competition.…”

Cournot–Bertrand comparisons under R&D competition: Output versus R&D subsidies

“…Hinloopen and Vandekerckhove (2009) investigated the efficiency of R&D that generates input spillovers and showed that Cournot firms invest more in R&D than Bertrand but can yield lower prices than Bertrand when the R&D process is efficient, spillovers are substantial, and products are less differentiated. Basak and Wang (2019) further examined R&D competition in a mixed duopoly where a public firm competes with a private firm, and found that the public firm invests more R&D than the private firm and Bertrand is the equilibrium of endogenous choice between Bertrand and Cournot. However, these works neither considered the role of R&D policies nor compared the welfare effects of government policies.…”