Comparing Cournot and Bertrand Equilibria in the Presence of Spatial Barriers and R&D

We compare the equilibria under Bertrand and Cournot competition in the spatial barbell model where spatial barriers and process R&D are involved. We show that when the market becomes more competitive by switching from Cournot to Bertrand competition, R&D investment may increase (decrease) depending upon a low (high) transport rate. Next, we find that under Cournot competition total output, consumer surplus, and welfare are higher, but profit is lower than is true for Bertrand competition, when the transport rate is high, which overturns the traditional result.