Great Power Competition, Technology Substitution and Industrial Policy Coopetition: An Analysis Based on a Two-Country Game

As the concept of national security and the nature of strategic competition evolve, industrial policy competition has increasingly become a defining feature of great-power competition. This study constructs a welfare function based on the analysis of industrial policy returns, employing a duopoly game model to explore the dynamics of competition and cooperation in the context of great-power competition. The findings suggest that in the short run, major powers tend to adopt strategic competition strategies, leading to instability in cooperation. In the long run, the realization and maintenance of cooperation depend on incentive mechanisms and penalty constraints. Specifically, a higher proportion of strategic industries raises the threshold for cooperation, making nations more likely to sustain short-term strategic competition. Sensitivity to technological gaps, however, facilitates the realization of long-term cooperation. When retaliatory subsidy probabilities are included, the stability of long-term cooperation hinges on the enforceability of the penalty mechanism. Furthermore, an infinite-horizon game does not necessarily lead to cooperation, and a finite punishment mechanism makes cooperation even more difficult. Numerical simulations are employed to validate the stability of the model, providing theoretical support for the strategic choices of latecomer countries in global industrial competition.