Starting from the static analysis in Eckert et al. (2017), we study a Cournot duopoly where firms can decide to incur fixed costs in activities that improve their competitiveness (i.e. product development or process innovation). Innovation costs generate discontinuities in the firms quantity best response functions and, in turn, a variety of equilibrium configurations, including multiple equilibria. We provide a dynamic global analysis of the equilibria and show the way in which firms’ initial expectations regarding the rivals level of output are crucial in defining the configuration of the long run equilibrium.
Lamantia, F. G., Mario, P., Tramontana, F., Dynamic analysis of discontinuous best response with innovation., <<JOURNAL OF ECONOMIC DYNAMICS & CONTROL>>, 2018; 91 (91): 120-133. [doi:10.1016/j.jedc.2018.01.024] [http://hdl.handle.net/10807/110242]
Dynamic analysis of discontinuous best response with innovation.
Lamantia, Fabio Giovanni
;Tramontana, Fabio
2018
Abstract
Starting from the static analysis in Eckert et al. (2017), we study a Cournot duopoly where firms can decide to incur fixed costs in activities that improve their competitiveness (i.e. product development or process innovation). Innovation costs generate discontinuities in the firms quantity best response functions and, in turn, a variety of equilibrium configurations, including multiple equilibria. We provide a dynamic global analysis of the equilibria and show the way in which firms’ initial expectations regarding the rivals level of output are crucial in defining the configuration of the long run equilibrium.
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