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<p>We study the welfare effects of intensified competition, which we model as an increase in the number of non-innovative firms, in a Cournot oligopoly with a single cost-reducing R&amp;D innovator. The welfare impact can be characterized in terms of firms’ outputs, profits, margins, and investment responses. A linear-demand version of the model shows that welfare increases with the intensity of competition when the R&amp;D cost is sufficiently high, thereby generalizing Lahiri and Ono (1988) by endogenizing ex post cost asymmetry. We also show that the investment response to intensified competition can be non-monotonic. When the innovator’s R&amp;D cost is sufficiently low, tougher competition can stimulate innovation, and this mechanism plays a pivotal role in reversing the welfare effect.</p>

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Welfare effects of intensifying competition in the presence of an innovator

  • 期刊论文

  • 发表日期：

    2026年8月4日

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  • Takeshi Ikeda,
  • Tadanobu Tanno,
  • Yoshihito Yasaki

摘要

We study the welfare effects of intensified competition, which we model as an increase in the number of non-innovative firms, in a Cournot oligopoly with a single cost-reducing R&D innovator. The welfare impact can be characterized in terms of firms’ outputs, profits, margins, and investment responses. A linear-demand version of the model shows that welfare increases with the intensity of competition when the R&D cost is sufficiently high, thereby generalizing Lahiri and Ono (1988) by endogenizing ex post cost asymmetry. We also show that the investment response to intensified competition can be non-monotonic. When the innovator’s R&D cost is sufficiently low, tougher competition can stimulate innovation, and this mechanism plays a pivotal role in reversing the welfare effect.