A rational choice of technology in a strategic setting

This research tackles the issue of the rational (endogenous) choice of constant-return-to-scale (CRS) or decreasing-return-to-scale (DRS) technologies in a strategic setting. In this regard, the paper considers a simultaneous-move (Cournot) duopoly showing that the emerging sub-game perfect Nash equilibrium (SPNE) ranges from the prisoner's dilemma to the deadlock, passing through the anti-coordination game. The article also identifies the SPNE's social welfare outcomes, highlighting win-win solutions and policy implications. It finally introduces horizontal product differentiation and considers the technology decision game (TDG) in a Bertrand-rivalry setting, comparing it with the Cournot model. The TDG à la Cournot with iso-elastic demand and the sequential TDG à la Stackelberg are also considered.