Cournot–Bertrand comparisons under R&D competition: Output versus R&D subsidies

Abstract

We compare Cournot and Bertrand competitions with R&D investment under output versus R&D subsidy policies. We demonstrate that Cournot firms invest more (less) in R&D and the government grants more (less) subsidies than for Bertrand firms with output (R&D) subsidies. We also find that both competition modes yield the same welfare with output subsidy, while Bertrand yields higher welfare than Cournot with R&D subsidy. Finally, firms' profits and welfare in Cournot are higher under output subsidies, while they can be higher in Bertrand under R&D subsidies if the product substitutability is high and the firm's R&D investment is efficient.