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International Trade Policy towards Monopoly and Oligopoly

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  • Praveen Kujal

    ()
    (Universidad Carlos III de Madrid)

  • Juan Ruiz

    ()
    (Banco de España)

Abstract

This paper highlights the importance of product differentiation and endogenous R&D in determining the optimal R&D policy, in a model where investment in cost reducing R&D is committed before firms compete in a differentiated-goods third-country export market. R&D is always taxed in oligopolies for high degrees of product differentiation. For lower degrees of product differentiation the duopoly is subsidized or the government remains inactive. In contrast, the monopoly is always subsidized. The government with a duopoly may be active or inactive depending on the degree of product differentiation. Thus, we may observe a reversal in the sign of the optimal R&D policy if the degree of product differentiation changes or, alternatively, if there is a change in the number of firms. Similar qualitative results hold if trade policy uses output subsidies, instead of R&D promotion.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/09/Fic/dt0901e.pdf
File Function: First version, February 2009
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0901.

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Length: 27 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:bde:wpaper:0901

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Related research

Keywords: product differentiation; strategic trade policy; policy reversals; r&d subsidies; monopoly; duopoly;

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References

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  1. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
  2. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  3. Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2000. "Quantity restrictions and endogenous quality choice," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1259-1277, December.
  4. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 707-22, October.
  5. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  6. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
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Cited by:
  1. Takauchi, Kazuhiro, 2012. "International R&D Rivalry with a Shipping Firm," MPRA Paper 36843, University Library of Munich, Germany.
  2. Richard Gretz & Jannett Highfill & Robert Scott, 2012. "R&D subsidy games: a cost sharing approach vs. reward for performance," The Journal of Technology Transfer, Springer, vol. 37(4), pages 385-403, August.

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