Subsidy for New Technology Adoption in Duopoly with Differentiated Goods under Absolute and Relative Profit Maximization

Masahiko HATTORI, Yasuhito TANAKA

Abstract


Abstract. We present an analysis about subsidy policy for adoption of new technology in duopoly with differentiated goods under absolute and relative profit maximization. Technology itself is free, however, firms must expend fixed set-up costs to adopt new technology. There are various cases about optimal policies depending on the level of the set-up cost and whether the goods of the firms are substitutes or complements. In particular, under relative profit maximization there is a case such that the social welfare is maximized when one firm adopts new technology, but no firm adopts new technology without subsidy. Then, the government should give a subsidy to only one firm. It is a discriminatory policy. The government gives a chance to receive a subsidy to only one firm.

Keywords. Subsidy for new technology adoption, Absolute and relative profit maximization, Duopoly.

JEL. D43, L13.


Keywords


Subsidy for new technology adoption; Absolute and relative profit maximization; Duopoly.

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References


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DOI: http://dx.doi.org/10.1453/jel.v3i3.989

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