R&D in Transport and Communication in a Cournot Duopoly, Rivista Internazionale di Scienze Economiche e Commerciali, forthcoming

We analyse R&D activity in transport and communication technology (TCRD), in a Cournot duopoly. Transport and communication costs are of the iceberg type, i.e., using up some portion of the product along its path to the …nal buyer. Firms invest in TCRD to increase the net amount of the product that reaches consumers. A variety of equilibria arise as a result of the di¤erent levels of TCRD e¢ciency. If TCRD’s productivity is high, the game is a prisoner’s dilemma where both …rms invest in TCRD. As the e¢ciency of the TCRD progressively fades we come across …rst a chicken game and, then, at lower e¢ciency, a game with an equilibrium in dominant strategies where the pro…ts are at the highest. Social welfare is maximised by market strategies only when TCRD is very e¢cient. JEL classi…cation: D43,L13, O31