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Research Joint Ventures, Optimal Licensing, and R&D Subsidy Policy

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  • Fan, Cuihong
  • Wolfstetter, Elmar G.

Abstract

We reconsider the justifications of R&D subsidies by Spencer and Brander (1983) and others by allowing firms to pool R&D investments and license innovations. In equilibrium R&D joint ventures are formed and licensing occurs in a way that eliminates the strategic benefits of R&D investment in the subsequent oligopoly game. Nevertheless, governments subsidize their domestic firms in order to raise their bargaining position in the joint venture. This holds true regardless of whether governments offer either unconditional or conditional subsidies. This suggests an alternative explanation of the observed proliferation of R&D subsidies.

Suggested Citation

  • Fan, Cuihong & Wolfstetter, Elmar G., 2006. "Research Joint Ventures, Optimal Licensing, and R&D Subsidy Policy," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 165, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:165
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    References listed on IDEAS

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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