Premium
Perpetual Leapfrogging in Bertrand Duopoly[Note 2. Manuscript received June 1998; revised August 1999. ...]
Author(s) -
Giovannetti Emanuele
Publication year - 2001
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00129
Subject(s) - leapfrogging , duopoly , economics , markov perfect equilibrium , microeconomics , bertrand competition , industrial organization , cournot competition , nash equilibrium , oligopoly , economic growth
We consider different patterns of infinite technological adoption choices by firms in a Bertrand duopoly. Every period technological progress provides a sequence of cost reducing innovations. The equilibrium concept is Markov perfect equilibrium. We analyze conditions for which equilibrium adoption leads to persistent leadership and those where firms alternate in adoption inducing leapfrogging. Only leapfrogging leads to technological improvement in the long run. Demand conditions play a crucial role in determining whether leapfrogging can be perpetual in Bertrand duopoly.