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International R&D Rivalry and Industrial Strategy without Government Commitment

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  • Leahy, Dermot
  • Neary, J Peter

Abstract

We examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfare are higher in an equilibrium in which government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment yields gains but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all.

Suggested Citation

  • Leahy, Dermot & Neary, J Peter, 1995. "International R&D Rivalry and Industrial Strategy without Government Commitment," CEPR Discussion Papers 1199, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1199
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    Keywords

    Commitment; Dynamic Consistency; Export Subsidies; R&D Subsidies; Research and Development; Strategic Trade Policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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