The Sensitivity of Strategic and Corrective R&D Policy in Oligopolistic Industries

We evaluate the sensitivity of the case for an R&D subsidy in an export sector when the outcome of R&D is uncertain and when the resulting product market is oligopolistic. Investments in R&D are assumed to induce either first order or mean-preserving second order shifts in the distribution of a firm's costs, with firms then competing in either prices or quantities in the product market. When R&D reduces the mean of a firm's cost distribution in the particular sense of first order stochastic dominance, we find using standard models of product market competition that a national strategic basis for R&D subsidies exists, whether firms choose prices or quantities. This national strategic incentive to subsidize R&D must be balanced against the national corrective incentive to tax R&D that arises whenever the number of domestic firms exceeds one. However, when R & D preserves the mean but alters the riskiness of a firm's cost distribution in the sense of second order stochastic dominance, we find that the national strategic basis for R&D intervention completely disappears, while the national corrective incentive is now to subsidize R&D whenever the number of domestic firms exceeds one. We conclude that the crucial determinant of appropriate R&D policy is the nature of the R&D process itself.(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed (This abstract was borrowed from another version of this item.)