Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/127084 
Year of Publication: 
2014
Series/Report no.: 
ISER Discussion Paper No. 895
Publisher: 
Osaka University, Institute of Social and Economic Research (ISER), Osaka
Abstract: 
This paper analyses the incentives to adopt cost-reducing technology by firms in a horizontally differentiated industry. In our model there are several suppliers of a new technology. The extent of the cost reduction depends on the quality of the new technology. A firm has to buy the technology in a 'scoring auction'. This means that both the price and the quality (which affects marginal cost of production) of this new technology are no longer given but depend on the equilibrium outcome in the 'scoring auction'. We show that the nature of competition (Cournot or Bertrand) has no effect on the equilibrium decision of the firms to adopt the new technology when the quality of the new technology offered by the suppliers lies in the interior of the feasible range of qualities. In this case, both firms adopt new technology. However, when there is a corner solution, then it is possible to have equilibria where only one firm (or no firm) adopts the new technology. With corner solution the nature of competition (Cournot or Bertrand) makes a difference to the equilibrium outcomes.
JEL: 
L13
L11
D43
D44
Document Type: 
Working Paper

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