Abstract. We analyze the role of technology levels in collusion and welfare in Cournot duopoly set up with a linear demand and quadratic costs. We show that for relatively inefficient technologies, the collusive profit is dominated by the Cournot-Nash profit; thus, the firms with not-so good technologies would not collude. We also show that as technology improves, the collusive profit dominates the Cournot-Nash profit, which creates an incentive for collusion, i.e., innovation would lead to collusion. We also show that, for very good/bad technology, innovation would not be anticonsumers’ welfare, whereas for the intermediate one, it may be.

Keywords: technology, innovation, collusion, Cournot-Nash, profit, welfare, costs.