Comparing Cournot and Bertrand Equilibria in a Reciprocal Dumping Model with Product R&D Investment

This paper analyzes and compares Cournot and Bertrand equilibria in a reciprocal dumping model in which two firms compete in domestic and foreign markets with differentiated goods and product R&D investment. It is shown that in a symmetric equilibrium: (i) R&D expenditure and product quality can be higher under Cournot competition than under Bertrand competition; (ii) domestic and export prices are higher and domestic sales and exports can be higher under Cournot competition than under Bertrand competition; (iii) profits can be higher under Bertrand competition than under Cournot competition; (iv) consumer surplus can be higher under Cournot competition than under Bertrand competition; and (v) social welfare can be higher in the Bertrand equilibrium than in the Cournot equilibrium. This result implies that profits can affect social welfare more than consumer surplus does in a reciprocal dumping model with differentiated goods and product R&D investment.