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Strategic Product R&D Investment Policy under International Rivalry in the Presence of Demand Spillover Effects


  • Tsuyoshi Toshimitsu


We develop a model of product (i.e., quality-improving) research and development (R&D) investment competition in a horizontally differentiated duopoly. In particular, based on a third-country market model, we consider the optimal product R&D investment policy under international rivalry in the presence of demand spillover effects associated with improving the quality level of a product. We show how the optimality of a non-cooperative and a cooperative R&D investment policy depends on the strength of demand spillover effects. Furthermore, we consider the same issues in the case of heterogeneous consumers and alternative utility functions.

Suggested Citation

  • Tsuyoshi Toshimitsu, 2014. "Strategic Product R&D Investment Policy under International Rivalry in the Presence of Demand Spillover Effects," International Economic Journal, Taylor & Francis Journals, vol. 28(2), pages 293-309, June.
  • Handle: RePEc:taf:intecj:v:28:y:2013:i:2:p:293-309
    DOI: 10.1080/10168737.2014.905619

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    References listed on IDEAS

    1. Koji Ishibashi & Toyokazu Kaneko, 2008. "Partial privatization in mixed duopoly with price and quality competition," Journal of Economics, Springer, vol. 95(3), pages 213-231, December.
    2. Ornaghi, Carmine, 2006. "Spillovers in product and process innovation: Evidence from manufacturing firms," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 349-380, March.
    3. Naoto Jinji, 2003. "Strategic policy for product R&D with symmetric costs," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 993-1006, November.
    4. Tsuyoshi Toshimitsu, 2012. "Quality Competition and a Demand Spillover Effect: A Case of Product Differentiated Duopoly," Discussion Paper Series 89, School of Economics, Kwansei Gakuin University, revised Jun 2012.
    5. Gamal Atallah, 2005. "R&D cooperation with asymmetric spillovers," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 919-936, August.
    6. Moonsung Kang, 2006. "Trade policy mix: IPR protection and R&D subsidies," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 744-757, August.
    7. Arastou Khatibi & Wouter Vergote, 2011. "Trade policy in the face of price and non-price strategies," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(1), pages 3-21, April.
    8. Zhou, Dongsheng & Spencer, Barbara J. & Vertinsky, Ilan, 2002. "Strategic trade policy with endogenous choice of quality and asymmetric costs," Journal of International Economics, Elsevier, vol. 56(1), pages 205-232, January.
    9. Jee-Hyeong Park, 2001. "Strategic R&D policy under vertically differentiated oligopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 967-987, November.
    10. Raymond De Bondt & Irene Henriques, 1995. "Strategic Investment with Asymmetric Spillovers," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 656-674, August.
    11. Jie Ma & Alistair M. Ulph, 2012. "Advertising Subsidy and International Oligopolistic Competition," Review of International Economics, Wiley Blackwell, vol. 20(4), pages 793-806, September.
    12. De Bondt, Raymond & Veugelers, Reinhilde, 1991. "Strategic investment with spillovers," European Journal of Political Economy, Elsevier, vol. 7(3), pages 345-366, October.
    13. Julie DeCourcy, 2005. "Cooperative R&D and strategic trade policy," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 546-573, May.
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    Cited by:

    1. Taba Yumiko, 2016. "Optimal Product R&D Policies with Endogenous Quality Choices and Unilateral Spillover," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(1), pages 365-391, January.

    More about this item

    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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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