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Optimal R & D Policy and Managerial Delegation Under Vertically Differentiated Duopoly
Author(s) -
Wang YaChin
Publication year - 2013
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/saje.12006
Subject(s) - delegation , duopoly , economic surplus , economics , cournot competition , competition (biology) , microeconomics , welfare , government (linguistics) , social welfare , market structure , market economy , ecology , linguistics , philosophy , management , political science , law , biology
The paper investigates the optimal research and development ( R & D ) policy in a vertically differentiated market with managerial delegation. We consider not only discriminatory R & D policy but uniform R & D policy as well. It shows that R & D policy can vary depending on the regulator's objective: social welfare, consumer surplus or producer surplus; however, the outcomes are invariant to the nature of market competition. Undoubtedly, the relative‐performance contract plays a crucial role for elaborating policy effects. The government prefers discriminatory R & D policy to uniform policy under a consumer‐oriented objective. On the contrary, under a producer‐oriented objective, the government would prefer to choose uniform R & D policy rather than discriminatory policy.