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Endogenous product differentiation and international R&D policy

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  • Hoefele, Andreas

Abstract

The aim of this paper is to analyse the optimal R&D policy for internationally active firms investing in product innovation. The evidence shows that firms invest significantly in product innovation, and policy makers have shown renewed interest in evaluating potential impact of advances when targeting R&D support. I show that the optimal R&D policy – a tax or a subsidy – depends on the strength of the market-expansion effect, which is linked to the strength of the consumer's preference for differentiated goods. This paper therefore provides a clear rationale for targeting sectors with a strong market-expansion effect with subsidies.

Suggested Citation

  • Hoefele, Andreas, 2016. "Endogenous product differentiation and international R&D policy," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 335-346.
  • Handle: RePEc:eee:reveco:v:41:y:2016:i:c:p:335-346
    DOI: 10.1016/j.iref.2015.07.005
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    References listed on IDEAS

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    Cited by:

    1. Chen, Sheng-Syan & Lin, Chih-Yen & Tsai, Yun-Ching, 2018. "New product strategies and firm performance: CEO optimism," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 37-53.
    2. Luciano Fanti & Luca Gori, 2017. "A product innovation game with managerial delegation," Discussion Papers 2017/223, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    Keywords

    R&D; Duopoly; Product differentiation; Industrial policy; Strategic trade policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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