Publication: International trade policy towards monopolies and oligopolies
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2009-08
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Blackwell
Abstract
This paper highlights the importance of product differentiation and endogenous R&D in determining the
optimal R&D policy, in a model where investment in cost-reducing R&D is committed before firms compete
in a differentiated-goods third-country export market. R&D is always taxed in oligopolies for high degrees
of product differentiation. For lower degrees of product differentiation the duopoly is subsidized or the
government remains inactive. In contrast, the monopoly is always subsidized.The government with a duopoly
may be active or inactive depending on the degree of product differentiation.Thus,wemay observe a reversal
in the sign of the optimal R&D policy if the degree of product differentiation changes or, alternatively, if
there is a change in the number of firms. Similar qualitative results hold if trade policy uses output subsidies,
instead of R&D promotion.
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Keywords
Product differentiation, strategic trade policy, policy reversals, R&D subsidies, monopoly, duopoly
Bibliographic citation
Review of international economics, vol. 17, n.3 , August 2009, pp. 461-475