Technology adoption in a differentiated duopoly: Cournot versus Bertrand

Abstract

This paper shows that the cost as well as the effectiveness of technology has a differential impact on technology adoption under two alternative modes of competition. If the cost of the technology is high, Bertrand competition provides a stronger incentive to adopt technology than Cournot competition unless the effectiveness of the technology is very low. On the contrary, if the cost of the technology is low, Cournot competition fares better than Bertrand competition in terms of technology adoption by firms. This demonstrates that the commonly subscribed assumption of ‘positive primary outputs’ restricts (inflates) the scope of higher degree of technology adoption under Bertrand (Cournot) competition. Moreover, in contrast to standard welfare ranking, it shows that Cournot competition leads to higher social welfare than Bertrand competition under certain situations.