Duopoly innovation with monopoly debater

You-hua CHEN, Pu-yan NIE, Ji-bo Huang


Purpose – This paper highlights the interaction between innovation
and financial structure under duopoly with a monopoly debater.

Design/methodology/approach – By game-theory approaches, we
characterize effects of debt levels on innovative investment with limited
liability effect.

Findings – This paper argues that higher debt levels increase both
innovative investment and output. Both higher debt rate and higher
debt levels act as commitment to reduce opponent firms’ net profits.
Net profit for unit debt is reduced with higher debt level and higher
debt rate.

Originality/value – This study extends Brander and Lewis’s (1986) to
innovative situation and no interior point solution is restricted.


Financial structure; innovation; monopoly debater; corporate finance; commitment

DOI: https://doi.org/10.7819/rbgn.v19i63.2462

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