DIFFERENTIATED PRODUCTS WITH RESEARCH-AND-DEVELOPMENT

This paper looks to the literature on one-dimensional, location, models and adds to it a simple process of R&D. Differentiated-products models have often included sequential entry in order to add realism, but the order of entry is known. Here, the order is not known a priori. Also, interim profits are not ignored, allowing the monopoly profits to affect the outcome. It is found that firms do not necessarily locate at the extrema, but often race for the optimal monopoly variety - the midpoint of the interval.