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Inducing R&D investment with price ceilings

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Author Info

  • Youping Li

    ()
    (Department of Economics, University of Tennessee)

  • Cristina M. Reiser

    ()
    (Department of Economics, University of Tennessee)

  • Zhou Yang

    ()
    (Department of Economics, University of Tennessee)

Abstract

Though government intervention is prevalent in the market for research and development (R&D), most literature has focused on the use of subsidies, patents or joint research ventures to obtain the efficient R&D investment. By using a two-stage duopoly model in which firms first choose the level of investment and then output, our paper shows that the introduction of a price ceiling by the regulator will result in the optimal level of R&D. This interesting but counterintuitive result contrasts with the existing literature and advances our understanding about price ceilings.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I2-P142.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 2 ()
Pages: 1548-1553

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Handle: RePEc:ebl:ecbull:eb-10-00250

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Related research

Keywords: Research and development; Subsidy; Price ceiling;

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  1. Darmot Leahy & J. Peter Neary, 1997. "Public Policy Towards R & D in Oligopolistic Industry," Politick√° ekonomie, University of Economics, Prague, vol. 1997(5), pages 683-698.
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