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International R&D Rivalry and Industrial Strategy

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  • Barbara J. Spencer
  • James A. Brander

Abstract

This paper presents a theory of government intervention which provides an explanation for "industrial strategy" policies such as R&D or export subsidies in imperfectly competitive international markets. Each producing country has an incentive to try to capture a greater share of rent-earning industries using subsidies, but the subsidy-ridden international equilibrium is jointly suboptimal. The equilibrium in the strategic game involving firms and governments is modelled as a three stage subgame perfect Nash equilibrium. The assumption that the government is the first player in this game allows it to influence equilibrium industry outcomes by altering the set of credible actions open to firms.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1192.

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Date of creation: Aug 1983
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Publication status: published as Spencer, Barbara J. and James A. Brander. "International R&D Rivalry and Industrial Strategy." Review of Economic Studies, Vol. 50, No. 163, (October 1983), pp. 707-722.
Handle: RePEc:nbr:nberwo:1192

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  1. Auquier, A A & Caves, R E, 1979. "Monopolistic Export Industries, Trade Taxes, and Optimal Competition Policy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 89(355), pages 559-81, September.
  2. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, Econometric Society, vol. 48(2), pages 479-89, March.
  3. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  4. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  5. Gilbert, Richard J & Harris, Richard G, 1981. "Investment Decisions with Economies of Scale and Learning," American Economic Review, American Economic Association, American Economic Association, vol. 71(2), pages 172-77, May.
  6. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  7. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 14(3), pages 371-89, August.
  8. Frenkel, Jacob A, 1971. "On Domestic Demand and Ability to Export," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 79(3), pages 668-72, May-June.
  9. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers, Queen's University, Department of Economics 517, Queen's University, Department of Economics.
  10. B. Curtis Eaton & Richard G. Lipsey, 1980. "Exit Barriers are Entry Barriers: The Durability of Capital as a Barrier to Entry," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 11(2), pages 721-729, Autumn.
  11. Basevi, Giorgio, 1970. "Domestic Demand and Ability to Export," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 78(2), pages 330-37, March-Apr.
  12. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, Elsevier, vol. 27(2), pages 253-279, August.
  13. Flaherty, M Therese, 1980. "Industry Structure and Cost-Reducing Investment," Econometrica, Econometric Society, Econometric Society, vol. 48(5), pages 1187-1209, July.
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