Optimal Policy for Product R&D with Endogenous Quality Ordering: Asymmetric Duopoly
AbstractWe examine the optimal R&D subsidy/tax policy under a vertically differentiated duopoly. In a significant departure from the existing work, we consider the case of asymmetric costs of product R&D where there is a small technology gap between firms. In our analysis, the endogeneity of quality ordering is explicitly taken into account. We show that the optimal policy is described by a firm-specific subsidy schedule that is contingent on firms' quality choices. The subsidy schedule not only corrects the distortion in product quality but also selects the socially preferred equilibrium. Both Bertrand and Cournot cases are analyzed.
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Bibliographic InfoPaper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2004-08.
Length: 27 p.
Date of creation: Dec 2004
Date of revision:
asymmetric duopoly; endogenous quality ordering; product R&D; R&D policy; vertical product differentiation;
Other versions of this item:
- Naoto Jinji & Tsuyoshi Toshimitsu, 2006. "Optimal Policy For Product R&D With Endogenous Quality Ordering: Asymmetric Duopoly ," Australian Economic Papers, Wiley Blackwell, vol. 45(2), pages 127-140, 06.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
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