Kujal, PraveenCosta-Cabral, CéliaUniversidad Carlos III de Madrid. Departamento de Economía2009-12-182009-12-181999-102340-5031https://hdl.handle.net/10016/6166The incentives for governments to impose subsidies and tariffs on R&D and output is analyzed in a differentiated good industry where firms invest in a cost saving technology. When government commitment is credible, subsidies to R&D and output are positive both under Bertrand and Cournot competition. In the absence of government commitment the policy instrument is a tariff under Bertrand, and a subsidy under Cournot, competition. However, welfare under free trade is always greater than imposing a tariff unilaterally, or bilaterally, and hence non-committal under price competition is never an equilibrium. If a government has to choose either a subsidy on R&D (or on output) then, independent of price or quantity competition, it subsidies R&D for low levels of product substitutability and output for higherlevels of substitutability.application/pdfengAtribución-NoComercial-SinDerivadas 3.0 EspañaProduct differentiationTrade policiesCommimentTariffsSubsidiesworking paperEconomíaopen access