A Note on Optimal Industrial Policy Towards Bertrand Homogeneous Duopoly

Qi Duan and Jie Ma

Australian Economic Papers, 2017, vol. 56, issue 4, 292-303

Abstract: Recent studies in strategic trade and industrial policy analysis suggest that an investment subsidy, in the form of an R&D subsidy, a capacity subsidy or an advertising subsidy, would be a robust industrial policy recommendation towards an international differentiated oligopoly. However, in this paper, we show that this result does not carry over to the case of a Bertrand homogeneous duopoly. This result together with the fact that the optimal industrial policy is to set an investment subsidy when in product market competition firms play a Cournot output game, imply immediately that there hardly exists a robust industrial policy recommendation towards homogeneous goods industries.

Date: 2017
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