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Research Joint Ventures, Optimal Licensing, and the R&D Subsidy Policy

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  • Fan Cuihong

    () (Shanghai University of Finance and Economics)

  • Wolfstetter Elmar G

    () (Humboldt University at Berlin)

Abstract

We reconsider the justifications of the R&D subsidies of Spencer and Brander (1983), by allowing firms to form a research joint venture (RJV) and license innovations. If governments offer unconditional subsidies, an RJV is formed and the strategic benefits of R&D subsidies vanish. Nevertheless, governments subsidize their domestic firms to enhance their bargaining position in the joint venture subgame. If governments offer subsidies conditional on forming resp. not forming an RJV, the game has multiple equilibria: one that restores the Spencer and Brander result, and another in which governments induce the formation of an RJV by a combination of conditional taxes and subsidies.

Suggested Citation

  • Fan Cuihong & Wolfstetter Elmar G, 2008. "Research Joint Ventures, Optimal Licensing, and the R&D Subsidy Policy," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-19, September.
    • Handle: RePEc:bpj:bejtec:v:8:y:2008:i:1:n:20
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    References listed on IDEAS

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    1. Giebe, Thomas & Wolfstetter, Elmar, 2008. "License auctions with royalty contracts for (winners and) losers," Games and Economic Behavior, Elsevier, vol. 63(1), pages 91-106, May.
    2. Miyagiwa, Kaz & Ohno, Yuka, 2002. "Uncertainty, spillovers, and cooperative R&D," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 855-876, June.
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