Publication:
Incentives for Cost Reduction under Export Restraints

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1998
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Institut National de la Statistique et des Études Économiques
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The effect of trade quotas on firms’ incentive to invest in cost-reducing R&D is studied in a two-stage price-setting duopoly game. A domestic and a foreign firm first choose R&D levels and then set the prices of their differentiated products in the domestic market. With a quota imposed at, or close to, the free-trade level of imports, the domestic firm faces less competition than under free-trade and invests less in R&D. Contrarily, the constrained foreign firm invests more in R&D as the negative strategic effect of a reduction in its cost is now absent. These results differ partially from the Cournot duopoly case in which R&D expenditures are lower for both the firms. As the quota becomes more restrictive, the domestic firm increases and the foreign firm decreases its expenditures on R&D. Domestic welfare is always higher under free-trade than under any quota regardless of the degree of product substitutability.---------------------------------------------------------------------------
Dans cet article, une firme nationale et une firme étrangère choisissent leurs niveaux de R&D dans un premier temps, puis fixent les prix de leurs produits différenciés sur le marché national. Si le quota imposé est égal ou est suffisamment proche du niveau des importations sous libre échange, la firme nationale investit moins en R&D. La firme étrangère contrainte investit plus, vu que l'effet stratégique négatif de la réduction des coûts par la R&D disparàît. On montre aussi que le niveau de bien-être national est toujours plus élevé sous libre échange indépendamment du degré de substituabilité des produits.
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Annales d'Economie et de Statistiques. 1998, vol. 49-50, p. 479-493