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Optimal Policy for Product R&D with Endogenous Quality Ordering: Asymmetric Duopoly


  • Jinji, Naoto
  • Toshimitsu, Tsuyoshi


We examine the optimal R&D subsidy/tax policy under a vertically differentiated duopoly. In a significant departure from the existing work, we consider the case of asymmetric costs of product R&D where there is a small technology gap between firms. In our analysis, the endogeneity of quality ordering is explicitly taken into account. We show that the optimal policy is described by a firm-specific subsidy schedule that is contingent on firms' quality choices. The subsidy schedule not only corrects the distortion in product quality but also selects the socially preferred equilibrium. Both Bertrand and Cournot cases are analyzed.

Suggested Citation

  • Jinji, Naoto & Toshimitsu, Tsuyoshi, 2004. "Optimal Policy for Product R&D with Endogenous Quality Ordering: Asymmetric Duopoly," Discussion Papers 2004-08, Graduate School of Economics, Hitotsubashi University.
  • Handle: RePEc:hit:econdp:2004-08
    Note: This version: December 8, 2004

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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.
    2. Julien Berthoumieu & Viola Lamani, 2016. "Vertical Differentiation, Uncertainty, Product R&D and Policy Instruments in a North-South Duopoly," Working Papers hal-01285559, HAL.
    3. repec:kap:jeczfn:v:122:y:2017:i:3:d:10.1007_s00712-017-0548-2 is not listed on IDEAS
    4. Ram Kumar Phuyal, 2016. "Imposition of R&D Subsidy in a Product Differentiated Duopolistic Industry," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(6), pages 336-351, June.

    More about this item


    asymmetric duopoly; endogenous quality ordering; product R&D; R&D policy; vertical product differentiation;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies


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