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Incentives for Cost Reducing Innovations under Quantitative Import Restraints

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  • Celia COSTA CABRAL
  • Praveen KUJAL
  • Emmanuel PETRAKIS

Abstract

The effect of trade quotas on firms' incentive to invest in cost-reducing R&D is studied in a two-stage price-setting duopoly game. A domestic and foreign firm first choose R&D levels and then set the prices of their differentiated products in the domestic market. With a quota imposed at, or close to, the free-trade level of imports, the domestic firm faces less competition than under free-trade and invests less in R&D. Contrarily, the constrained foreign firm invests more in R&D as the negative strategic effect of a reduction in its cost is now absent. These results differ partially from the Cournot duopoly case in which R&D expenditures are lower for both the firms. As the quota becomes more restrictive, the domestic firm increases and the foreign firm decreases its expenditures on R&D. Domestic welfare is always higher under free-trade than under any quota regardless of the degree of product substitutability.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (1998)
Issue (Month): 49-50 ()
Pages: 479-493

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Handle: RePEc:adr:anecst:y:1998:i:49-50:p:18

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Cited by:
  1. Frédérique Savignac, 2006. "The impact of financial constraints on innovation : evidence from french manufacturing firms," Cahiers de la Maison des Sciences Economiques v06042, Université Panthéon-Sorbonne (Paris 1).
  2. Hans Loof & Almas Heshmati, 2006. "On the relationship between innovation and performance: A sensitivity analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 317-344.
  3. BOCCARD, Nicolas & WAUTHY, Xavier, . "Equilibrium payoffs in a Bertrand-Edgeworth model with product differentiation," CORE Discussion Papers RP -1867, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Gabriele Pellegrino & Mariacristina Piva & Marco Vivarelli, 2009. "How do young innovative companies innovate?," Jena Economic Research Papers 2009-055, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  5. Marco Corsino, 2008. "Product Innovation and Growth: The Case of Integrated Circuits," ROCK Working Papers 047, Department of Computer and Management Sciences, University of Trento, Italy, revised 23 Jun 2008.
  6. Piva, Mariacristina & Vivarelli, Marco, 2006. "Is Demand-Pulled Innovation Equally Important in Different Groups of Firms?," IZA Discussion Papers 1982, Institute for the Study of Labor (IZA).
  7. repec:ebl:ecbull:v:12:y:2005:i:11:p:1-8 is not listed on IDEAS
  8. Praveen Kujal & Juan Ruiz, 2003. "International Trade Policy towards Monopolies and Oligopolies," International Trade 0302002, EconWPA, revised 17 Mar 2003.
  9. Benjamin H. Liebman & Kara M. Reynolds, 2009. "Innovation Through Protection: Does Safeguard Protection Increase Investment in R and D?," Working Papers 2009-18, American University, Department of Economics.
  10. DUGUET Emmanuel, 2004. "Innovation height, spillovers and TFP growth at the firm level: Evidence from French manufacturing," Development and Comp Systems 0411017, EconWPA.
  11. Savignac, F., 2007. "The impact of financial constraints on innovation: What can be learned from a direct measure?," Working papers 169, Banque de France.

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