Competition Through Technical Progress
29 Pages Posted: 16 Sep 2010 Last revised: 30 Jan 2011
Date Written: January 27, 2011
Abstract
This paper investigates the relationship between technical progress, competition, and the impact on consumer's surplus and welfare. A Hotelling model in symmetrical duopoly with full market coverage is introduced. Firms invest in order to improve the quality of their offer and thus consumers' willingness to pay. When the potential for technological advancement is great enough, particularly in the case of information technologies and telecommunication industry, firms are encouraged to invest. Social welfare benefit is greatest and most likely to occur where technological advancement is quick, even if it provides no profit to firms. Technological advancement stimulates investment, however, it also requires investment capabilities and therefore enough profits. Thus, different rates of technical progress are both a result of and a cause for different investment rates.
Keywords: Investment, Competition, Technical Progress, Dynamic Competition
JEL Classification: D21, D43, D92, L13, L51, L96, O12
Suggested Citation: Suggested Citation
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