Cuihong Fan (Shanghai University of Finance and Economics, School of Economics, Guoding Road 777, 200433 Shanghai, China. cuihong@gmx.net) Elmar Wolfstetter (Humboldt University at Berlin, Dept. of Economics, Institute of Economic Theory I, Spandauer Str. 1, D–10178 Berlin, Germany. elmar.wolfstetter@rz.hu-berlin.de)
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This paper reconsiders the explanation of R&D subsidies by Spencer and Brander (1983) and others by allowing firms to license their innovations and to pool their R&D investments. We show that in equilibrium R&D joint ventures are formed and licensing occurs in a way that eliminates the strategic benefits of R&D investment in the export oligopoly game. Nevertheless, national governments are driven to subsidize their own national firms in order to increase their strength in the joint venture bargaining game. Therefore, our analysis suggests an alternative explanation of the observed proliferation of R&D subsidies.
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Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number
89.