Vertical Differentiation, Uncertainty, Product R&D and Policy Instruments in a North-South Duopoly

Julien Berthoumieu and Viola Lamani ()
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Julien Berthoumieu: Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - UB - Université de Bordeaux
Viola Lamani: Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - UB - Université de Bordeaux

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Abstract: This paper analyzes the impact of several trade policy instruments on product Research and Development (R&D) investment in a North-South duopoly where a Northern firm competes in prices with a Southern firm on both markets. The Northern firm invests in product R&D owing to a competitive disadvantage compared to the Southern firm which benefits from a lower labor cost. The outcome of the R&D activity is uncertain. If successful, vertical differentiation occurs in both markets. The Northern country's government is the only one policy active and may implement the following trade policy instruments: an import tariff, a production subsidy, an R&D subsidy, a standard of quality, a minimum-price, and an import quota. The results show that the Northern firm's R&D expenditures increase with each policy instrument except for the import quota. The paper also provides a welfare analysis in order to verify whether or not the Northern government is encouraged to implement these policy instruments.

Keywords: Trade Policy Instruments; Product Research and Development; North-South Duopoly; Vertical Differentiation. (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-agr, nep-com, nep-ind, nep-ino, nep-int and nep-sbm
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