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International R&D Rivalry and Industrial Strategy without Government Commitment

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Author Info
Leahy, Dermot
Neary, J Peter

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Abstract

We examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfare are higher in an equilibrium in which government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment yields gains but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1199.

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Date of creation: Jun 1995
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Handle: RePEc:cpr:ceprdp:1199

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Related research
Keywords: Commitment Dynamic Consistency Export Subsidies R&D Subsidies Research and Development Strategic Trade Policy

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

Cited by:
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  1. José Luis Moraga & Jean-Marie Viaene, 1999. "Endogenous Quality Effects of Trade Policy," Tinbergen Institute Discussion Papers 99-094/2, Tinbergen Institute. [Downloadable!]
  2. Praveen Kujal & Juan Ruiz, 2003. "Policy Synchronization and Staggering in a Dynamic Model of Strategic Trade," International Trade 0302003, EconWPA. [Downloadable!]
  3. Praveen Kujal & Juan Ruiz, 2003. "International Trade Policy towards Monopolies and Oligopolies," International Trade 0302002, EconWPA, revised 17 Mar 2003. [Downloadable!]
  4. Leahy, Dermot & Neary, J Peter, 2001. "Robust Rules for Industrial Policy in Open Economies," CEPR Discussion Papers 2731, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Dermot Leahy, J. Peter Neary, 2001. "Robust rules for industrial policy open economies," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 10(4), pages 393-409, December. [Downloadable!] (restricted)
  6. J.P Neary & D Leahy, 1998. "Strategic Trade and Industrial PolicyTowards Dynamic Oligopolies," CEP Discussion Papers 0409, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  7. A. Mantovani & M. Vancauteren, 2003. "The Harmonization of Technical Barriers to Trade, Innovation and Export Behavior: Theory with an application to EU Environmental Data," Working Papers 480, Dipartimento Scienze Economiche, Università di Bologna. [Downloadable!]
  8. Barros,P.P. & Nilssen,T., 1999. "Industrial policy and firm heterogeneity," Memorandum 02/1999, Oslo University, Department of Economics. [Downloadable!]
    Other versions:
  9. J.P Neary, 1997. "Pitfalls in the Theory of International Trade Policy: Concertina Reforms of Tariffs and Subsidies to High Technology Industries," CEP Discussion Papers 0346, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  10. Norbäck, Pehr-Johan, 1999. "Multinational Firms, Technology and Location," Working Paper Series 512, Research Institute of Industrial Economics, revised 02 Nov 2000. [Downloadable!]
    Other versions:
  11. Neary, J Peter, 2002. "Foreign Competition and Wage Inequality," CEPR Discussion Papers 3420, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  12. J.P Neary & P O'Sullivan, 1998. "Beat 'Em or Join 'Em: Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets," CEP Discussion Papers 0408, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  13. Carsten Eckel, 2003. "Does globalization lead to specialization?," Center for European, Governance and Economic Development Research (cege) Discussion Papers 20, Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
  14. Kresimir Zigic, 2001. "Strategic Trade Policy, the "Committed" versus "Non-Committed" Government, and R&D Spillovers," CERGE-EI Working Papers wp177, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
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