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International R&D rivalry and industrial strategy without government commitment

Author

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  • Dermot Leahy
  • J. Peter Neary

Abstract

We examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfare are higher in an equilibrium in which government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment yields gains but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all.

Suggested Citation

  • Dermot Leahy & J. Peter Neary, 1995. "International R&D rivalry and industrial strategy without government commitment," Working Papers 199509, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:199509
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    File URL: http://hdl.handle.net/10197/1777
    File Function: First version, 1995
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    Keywords

    Research & Development; R&D subsidies; Strategic trade policy; Export subsidies; Commitment; Dynamic consistency; Research; Industrial; Industrial policy; Commercial policy; Export subsidies; Oligopolies;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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