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International R&D Rivalry and Industrial Strategy

Author

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  • Barbara J. Spencer
  • James A. Brander

Abstract

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. Domestic net welfare improves by capturing a greater share of the output of rent earning industries, although the subsidy-ridden noncooperative international equilibrium is jointly suboptimal. Behaviour of governments and firms is modelled as a three-stage subgame perfect Nash equilibrium. The assumption that government is the first player allows it to influence equilibrium outcomes by altering the set of credible actions by the firm.

Suggested Citation

  • Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Paper 518, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:518
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