Tsuyoshi Toshimitsu
"Optimal R&D policy and endogenous quality choice"
JEL codes: L13, L15
Keywords: endogenous quality choice, R&D policy

Abstract: In a quality-differentiated duopoly where (i) quality is endogenously chosen before production, (ii) fixed costs are increasing and convex in quality, and (iii) variable production costs are insubstantial, an R&D subsidy for the firm producing a high-quality product improves social welfare, irrespective of whether the ensuing product-market competition is Bertrand or Cournot, while an R&D subsidy for the firm producing a low-quality product improves social welfare only if Bertrand, and not if Cournot.

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