R&D Incentives under Bertrand Competition: A Differential Game

We investigate dynamic R&D for process innovation in an oligopoly where firms invest in cost-reducing activities. We focus on the correlation between R&D intensity and market structure, proving that the industry R&D investment at equilibrium monotonically increases in the number of firms. This result contradicts the established wisdom acquired from static games on the same topic. We also prove that, if competition is sufficiently tough, any increase in product substitutability reduces R&D efforts