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International R&D Rivalry and Industrial Strategy

  • Barbara J. Spencer
  • James A. Brander

This paper presents a theory of government intervention which provides an explanation for "industrial strategy" policies such as R&D or export subsidies in imperfectly competitive international markets. Each producing country has an incentive to try to capture a greater share of rent-earning industries using subsidies, but the subsidy-ridden international equilibrium is jointly suboptimal. The equilibrium in the strategic game involving firms and governments is modelled as a three stage subgame perfect Nash equilibrium. The assumption that the government is the first player in this game allows it to influence equilibrium industry outcomes by altering the set of credible actions open to firms.

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File URL: http://www.nber.org/papers/w1192.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1192.

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Date of creation: Aug 1983
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Publication status: published as Spencer, Barbara J. and James A. Brander. "International R&D Rivalry and Industrial Strategy." Review of Economic Studies, Vol. 50, No. 163, (October 1983), pp. 707-722.
Handle: RePEc:nbr:nberwo:1192
Note: ITI IFM
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  1. Flaherty, M Therese, 1980. "Industry Structure and Cost-Reducing Investment," Econometrica, Econometric Society, vol. 48(5), pages 1187-1209, July.
  2. Gilbert, Richard J & Harris, Richard G, 1981. "Investment Decisions with Economies of Scale and Learning," American Economic Review, American Economic Association, vol. 71(2), pages 172-77, May.
  3. B. Curtis Eaton & Richard G. Lipsey, 1980. "Exit Barriers are Entry Barriers: The Durability of Capital as a Barrier to Entry," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 721-729, Autumn.
  4. James A. Brander & Barbara J. Spencer, 1980. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Working Papers 414, Queen's University, Department of Economics.
  5. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  6. Frenkel, Jacob A, 1971. "On Domestic Demand and Ability to Export," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 668-72, May-June.
  7. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  8. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
  9. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
  10. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  11. Basevi, Giorgio, 1970. "Domestic Demand and Ability to Export," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 330-37, March-Apr.
  12. Auquier, A A & Caves, R E, 1979. "Monopolistic Export Industries, Trade Taxes, and Optimal Competition Policy," Economic Journal, Royal Economic Society, vol. 89(355), pages 559-81, September.
  13. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
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