Cournot Competition and 'Green' Innovation: An Inverted-U Relationship

Abstract

We examine the relationship between competition and innovation in an industry where production is polluting and R&D aims to reduce emissions ("green" innovation). We present an n-firm oligopoly where firms compete in quantities and decide their investment in "green" R&D.When environmental taxation is exogenous, aggregate R&D investment always increases with the number of firms in the industry. Next we analyse the case where the emission tax is set endogenously by a regulator (committed or time-consistent) with the aim to maximise social welfare. We show that an inverted-U relationship exists between aggregate R&D and industry size under reasonable conditions, and is driven by the presence of R&D spillovers.JEL codes: Q55, Q56, O30, L13.

A Differential Game of Transboundary Pollution Control and Ecological Compensation in a River Basin

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Transboundary watershed pollution control and product market competition with ecological compensation and emission tax: a dynamic analysis

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Quality‐improving R&D and merger policy in a differentiated duopoly: Cournot and Bertrand equilibria

“…Just as product R&D models have been developed in much literature, the theoretical foundation of horizontal mergers has been constructed in the vast bulk of literature (Farrell & Shapiro, 1990; Federico, Langus, & Valletti, 2017; Fikru & Gautier, 2017; Hennessy, 2000; Levin, 1990; Rothschild, Heywood, & Monaco, 2000; Salant, Switzer, & Reynolds, 1983, and others) . In the existing literature on R&D and mergers, many studies assume that the value of the spillover effect and product differentiation are exogenous (see, e.g., Brod & Shivakumar, 1997; Haruna & Goel, 2019; Lambertini, Poyago‐Theotoky, & Tampieri, 2017; Ouchida & Goto, 2016; Yakita & Yamauchi, 2011). On the other hand, Zhao (2015) and Flach and Irlacher (2018) proposed a convincing definition of the technological spillover function that is linked to the degree of product differentiation.…”