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We study an economy with a single sector under Cournot competition with complete information, in a game with two subgames. In the first subgame, the firms can make investments in R&D to reduce their production costs. In the second subgame, after the cost reduction, the firms choose their optimal output quantities in the usual Cournot competition.
The second subgame has a unique perfect Nash equilibrium. Depending on the parameters and on the final costs,
after investment, a firm may be in Monopoly, in Duopoly or out of the market (corresponding to a Monopoly of the other firm).
Furthermore, the investment is also dependent on the parameters and on the initial costs. It can be categorized as follows:
nil investment, when neither firm invests; single investment, when only one firm invests; competitive investment, when both firms invest. Depending on the parameters, we have found regions in the parameter space with one, two or three
Nash investment equilibria. We study the effect of the parameters in these regions, in particular we study the effect of product differentiation, giving special attention to regions with multiple Nash equilibria.
