Cooperative R&D and Strategic Trade Policy with Bertrand Competition

Julie Carlson

Review of International Economics, 2008, vol. 16, issue 2, 355-367

Abstract: This paper uses a strategic trade policy model to analyze the welfare effects from allowing cooperation in R&D when firms compete in a price‐setting game in the product market. A policy game between two governments is analyzed, where each government chooses a particular cooperative R&D policy in order to maximize national welfare. At the Nash equilibrium to this game only one government allows cooperation in R&D. This equilibrium is both individually and jointly optimal. International cooperation in R&D is superior to no cooperation in R&D but is inferior to the Nash equilibrium of the government policy game.

Date: 2008
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