DP1916 Beat 'Em or Join 'Em?: Export Subsidies Versus International Research Joint Ventures in Oligopolistic Markets

Author(s):	J Peter Neary
Publication Date:	June 1998
Keyword(s):	Commitment, cooperative agreements, Dynamic Consistency, Export Subsidies, R&D Spillovers, Research And Development, Research Joint Ventures (RJV's), Stategic Trade Policy
JEL(s):	F12, F13
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=1916

This paper compares adversarial with cooperative industrial and trade policies in a dynamic oligopoly game in which a home and foreign firm compete in R&D and output and, because of spillovers, each firm benefits from the other?s R&D. When the government can commit to an export subsidy, such a policy raises welfare relative to cooperation, except when R&D is highly effective and spillovers are near-complete. Without commitment, however, subsidization may yield welfare levels much lower than cooperation and lower even than free trade, though qualifications to the dangers from no commitment are noted.