Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- Introduction
- 1 Cost asymmetry and industrial policy in a closed economy
- 2 R&D policy
- 3 Trade and industrial policy under foreign penetration
- 4 Trade and industrial policy under asymmetric oligopoly: a synthesis
- 5 Trade policy when producers and sellers differ
- 6 Foreign penetration in the presence of unemployment
- 7 Local content requirement and profit taxation
- 8 Export-oriented foreign direct investment
- 9 Lobbying for local content requirement
- 10 Foreign direct investment in the presence of cross-hauling
- Bibliography
- Index
2 - R&D policy
Published online by Cambridge University Press: 22 September 2009
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- Introduction
- 1 Cost asymmetry and industrial policy in a closed economy
- 2 R&D policy
- 3 Trade and industrial policy under foreign penetration
- 4 Trade and industrial policy under asymmetric oligopoly: a synthesis
- 5 Trade policy when producers and sellers differ
- 6 Foreign penetration in the presence of unemployment
- 7 Local content requirement and profit taxation
- 8 Export-oriented foreign direct investment
- 9 Lobbying for local content requirement
- 10 Foreign direct investment in the presence of cross-hauling
- Bibliography
- Index
Summary
Introduction
In the previous chapter we considered the effect on national welfare of a minor firm's exogenous technical progress. However, technical progress usually occurs as a result of R&D investment. In this chapter we extend the analysis of chapter 1 by considering endogenous R&D investment by Cournot duopolists with initial cost differentials, and examine the structure of optimum R&D tax-cum-subsidies.
We conduct our analysis by developing a two-stage game of duopoly. In the first stage both firms decide on their cost-reducing R&D investments, and in the second they compete in a quantity-setting game. Much has been written on such two-stage models (see, for example, Bagwell and Staiger, 1994; Besley and Suzumura, 1992; Brander and Spencer, 1983; d'Aspremont and Jacquemin, 1988; Katz, 1986; Okuno-Fujiwara and Suzumura, 1993; Petit and SannaRandaccio, 2000; Rowthorn, 1992; Spence, 1984; Spencer and Brander, 1983; Suzumura, 1992; Varian, 1995). However, most of the authors work with models of symmetric oligopoly. Only Spencer and Brander (1983) consider asymmetry in marginal-cost levels. In their model rival firms which belong to two different countries compete only in a third country and the strategic use of government policies is at the heart of their analysis. They ignore the effect of R&D subsidies on consumers' surplus in the third country, and focus on only the international distribution of profits.
Although the literature on endogenous R&D is fairly large, very few authors analyse the question of R&D subsidies.
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- Publisher: Cambridge University PressPrint publication year: 2003