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R&D Subsidies, Spillovers, and Privatization in Mixed Markets

  • Maria José Gil-Moltó


    (Department of Economics, University of Leicester, Leicester LE1 7RH, England, UK)

  • Joanna Poyago-Theotoky


    (School of Economics and Finance, La Trobe University, Melbourne, Victoria 3086, Australia and Fellow of CRIEFF (University of St Andrews) and the Rimini Centre for Economic Analysis)

  • Vasileios Zikos


    (Department of Economics, University of Surrey, Guildford, Surrey, GU2 7XH, United Kingdom and School of Economics, University of the Thai Chamber of Commerce, 126/1 Vibhavadee-Rangsit Road, Dindaeng, Bangkok, 10400, Thailand)

We examine the use of subsidies to research and development (R&D) in a mixed and a private duopoly market. We show that the socially optimal R&D subsidy is increasing in the degree of spillovers, but it is lower in the private duopoly. The optimal R&D subsidy leads to an increase in total R&D and production; however, it does not lead to the equalization of per firm output and therefore to an efficient distribution of production costs. We also find that privatization of the public firm reduces R&D activity and welfare in the duopoly market. This result stands even when optimal R&D subsidies are provided.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 78 (2011)
Issue (Month): 1 (July)
Pages: 233-255

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Handle: RePEc:sej:ancoec:v:78:1:y:2011:p:233-255
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  1. de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
  2. Poyago-Theotoky, Joanna, 1998. "R&D Competition in a Mixed Duopoly under Uncertainty and Easy Imitation," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 415-428, September.
  3. Joanna Poyago-Theotoky, 2001. "Mixed oligopoly, subsidization and the order of firms' moves: an irrelevance result," Economics Bulletin, AccessEcon, vol. 12(3), pages 1-5.
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