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Product and Process R&D under Asymmetric Demands

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We develop a two-market model with asymmetric demands to examine the optimal product and process R&D under Bertrand and Cournot competition. We show that when the big market is sufficiently large and the cost parameter of product R&D is small or when the market is symmetric and the marginal disutility rate is high, the Cournot aggregate product R&D is greater than that under Bertrand competition. Next, when the big market is not sufficiently large and the cost parameter of product R&D is small, the Bertrand aggregate process R&D is greater than that under Cournot competition if the marginal disutility rate is low. (JEL: L1)
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Keywords: Bertrand competition; Cournot competition; process R&D; product R&D; two-market model

Appeared or available online: August 27, 2018

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