International Trade Policy towards Monopoly and Oligopoly

Praveen Kujal and Juan Ruiz

No 901, Working Papers from Banco de España

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, we may 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.

Keywords: product differentiation; strategic trade policy; policy reversals; r&d subsidies; monopoly; duopoly (search for similar items in EconPapers)
JEL-codes: F12 F13 L13 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-02
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: International Trade Policy towards Monopoly and Oligopoly* (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0901

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