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We examine a vertically differentiated duopoly where firms invest in process and product innovation and then compete in … prices under full market coverage. We show that (i) process and product innovation are complements (substitutes) for the low …-quality (high-quality) firm; (ii) the firm which is initially more efficient invests more than the rival in process innovation; (iii …
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We extend a well known differential oligopoly game to encompass the possibility for production to generate a negative environmental externality, regulated through Pigouvian taxation and price caps. We show that, if the price cap is set so as to fix the tolerable maximum amount of emissions, the...
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