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Is there a U-shaped relation between competition and investment?


Sacco, Dario; Schmutzler, Armin (2011). Is there a U-shaped relation between competition and investment? International Journal of Industrial Organization, 29(1):65-73.

Abstract

We consider a two-stage game with cost-reducing investments followed by a linear differentiated Cournot duopoly. With competition inversely parameterized by the extent of product differentiation, investment in the subgame perfect equilibrium is typically minimal for intermediate levels of competition. Laboratory experiments partly confirm the U-shape in a reduced one-stage version of the game. In the two-stage version, there is no evidence for positive effects of moving from intermediate to intense competition.

Abstract

We consider a two-stage game with cost-reducing investments followed by a linear differentiated Cournot duopoly. With competition inversely parameterized by the extent of product differentiation, investment in the subgame perfect equilibrium is typically minimal for intermediate levels of competition. Laboratory experiments partly confirm the U-shape in a reduced one-stage version of the game. In the two-stage version, there is no evidence for positive effects of moving from intermediate to intense competition.

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30 citations in Web of Science®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:January 2011
Deposited On:15 Dec 2009 12:25
Last Modified:05 Apr 2016 13:39
Publisher:Elsevier
ISSN:0167-7187
Publisher DOI:https://doi.org/10.1016/j.ijindorg.2009.09.003

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