Optimal Export Policy In The Presence Of R&D Investment
AbstractThe purpose of this paper is to analyze the optimal export policy in a two-stage game in which a domestic and a foreign firm compete in price and R&D investment. Under international Bertrand duopoly, an export subsidy directly promotes excess price competition, as delineated by Eaton and Grossman (1986). But, in the presence of international R&D rivalry, an export subsidy indirectly reduces the rival's R&D level, and thereby raises its cost. This effect offsets the negative effect of the export subsidy resulting in excess price competition. We show that an export subsidy (tax) policy is optimal if the relative return to R&D is great (small), provided that a government can precommit to an ex ante optimal export policy.
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Bibliographic InfoPaper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 17.
Length: 27 pages
Date of creation: Sep 1997
Date of revision: Sep 1997
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