Inducing R&D investment with price ceilings

Youping Li, Cristina Reiser () and Zhou Yang ()
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Cristina Reiser: Department of Economics, University of Tennessee
Zhou Yang: Department of Economics, University of Tennessee

Economics Bulletin, 2010, vol. 30, issue 2, 1548-1553

Abstract: Though government intervention is prevalent in the market for research and development (R&D), most literature has focused on the use of subsidies, patents or joint research ventures to obtain the efficient R&D investment. By using a two-stage duopoly model in which firms first choose the level of investment and then output, our paper shows that the introduction of a price ceiling by the regulator will result in the optimal level of R&D. This interesting but counterintuitive result contrasts with the existing literature and advances our understanding about price ceilings.

Keywords: Research and development; Subsidy; Price ceiling (search for similar items in EconPapers)
JEL-codes: D2 D4 (search for similar items in EconPapers)
Date: 2010-05-26
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Citations: View citations in EconPapers (2)

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