Flavio Delbono

R & D investment in a symmetric and homogeneous oligopol: Bertrand vs Cournot☆

Abstract In this paper we compare the equilibrium R & D investment under Bertrand and Cournot competition in a symmetric and homogeneous oligopoly. It is shown that, although the R&D investment is greater under Bertrand competition, social welfare, net of R & D costs, may be greater under Cournot competition. This conflict between static and dynamic efficiency arises because too many resources may be invested in R & D when there is price competition in the product market.

Incentives to Innovate in a Cournot Oligopoly

We study the R&D performance of Cournot aligopolists. To this end we model a one-shot noncooperative game in which firms invest in R&D, with the aim of being first in an uncertain competition for a patentable cost-reducing innovation. The incentives to innovate are market profits and not exogenously given prizes as in most of the earlier literature. Thus, incentives depend on the number of firms. We show that increasing rivalry may increase or decrease the individual R&D espenditure, there may be underinvestment with the various effect to the socially optimal level. Moreover, we identify the various effects which are responsible for the difference between our results and some conclusions of closely related contributions.

Regulating Innovative Activity: the Role of a Public Firm

Abstract Without spillovers and under the ‘winner-take-all’ hypothesis, there is overinvestment in R & D in a non-cooperative equilibrium due to duplication of effort. We show that a public firm can represent an effective instrument in the hands of a policymaker to mitigate such a problem. In particular, it is proved that, in a mixed duopoly: (i) each firm invests less than in a private duopoly, and (ii) although the expected time of innovation is postponed, social welfare is higher than in a private duopoly.

Competition policy vs horizontal merger with public, entrepreneurial, and labor-managed firms

Abstract The reorganization of existing state monopolies is a major issue of Eastern reformers. Given a market monopolized by a labor-managed (LM) firm we try to compare a mixed duopoly with the case in which the original maximand of the LM monopoly is modified to take into account either entrepreneurial profits or social welfare. Welfare comparisons of the various market arrangements are then presented in order to provide some tentative policy conclusions.

REGULATING INNOVATIVE ACTIVITY - THE ROLE OF A PUBLIC FIRM

Abstract Without spillovers and under the ‘winner-take-all’ hypothesis, there is overinvestment in R & D in a non-cooperative equilibrium due to duplication of effort. We show that a public firm can represent an effective instrument in the hands of a policymaker to mitigate such a problem. In particular, it is proved that, in a mixed duopoly: (i) each firm invests less than in a private duopoly, and (ii) although the expected time of innovation is postponed, social welfare is higher than in a private duopoly.

International monetary cooperation under tariff threats

We analyse games between two countries which use the threat of imposing a tariff to induce each other to follow monetary policies equivalent to those that would obtain under a cooperative game. The analysis shows that -- under certain assumptions concerning the shares of tariff revenues, what the countries spend on imports, the punishment structures and the discount factors -- the outcome of the game converges to the equivalent of the cooperative equilibrium, with zero tariffs and optimal monetary policies. It is suggested that the model could be applied to current relations between the US, Germany and Japan.

Persistence of High Income Inequality and Banking Crises: 1980-2010

Differently from Atkinson and Morelli (2011) who detect no clear link between increases in income inequality and systemic banking crises, we show that a large majority of crises occurred between 1982 and 2008 have been preceded by persistently high levels of income inequality. Such association is robust when considering Gini values for incomes after-tax as well as before-tax and transfers. Moreover, we investigate the pattern of income inequality levels before and after a group of banking crises and the relative levels of income inequality in a large sample of OECD countries that did not experience banking crises between 1980 and 2010.

Ranking Bertrand, Cournot and Supply Function Equilibria in Oligopoly

We show that the standard argument according to which supply function equilibria rank intermediate between Bertrand and Cournot equilibria may be reversed. We prove this result within a static oligopolistic game in which both supply function competition and Cournot competition yield a unique Nash equilibrium, whereas price setting yields a continuum of Nash equilibria. There are parameter regions in which Bertrand profits are higher than Cournot ones, with the latter being higher than in the supply function equilibrium. Such reversal of the typical ranking occurs when price-setting mimics collusion. We then show that the reversal in profits is responsible for a reversal in the welfare performance of the industry.

Bertrand versus Cournot with convex variable costs

Within a simple model of homogeneous oligopoly, we show that the traditional ranking between Bertrand and Cournot equilibria may be reversed. For price setting entails a continuum of price equilibria under convex variable costs, departure from marginal cost pricing may be observed. As a consequence, Bertrand-Nash equilibrium profits (welfare) may be higher (lower) than Cournot-Nash ones. The reversal of the standard rankings occurs when pricing strategies mimic collusive behaviour.

On the properties of linear supply functions in oligopoly

In this note we revisit the result by Menezes and Quiggin (2012), showing that under linear supply function competition, the same Nash equilibrium results when firms choose slopes or intercepts of their supply functions. This is because the first order conditions emerging in the two strategy spaces are not linearly independent.