International asymmetric R&D rivalry and industrial strategy

This study models an international duopoly under "asymmetrical" R&D investment rivalry, in which a firm from a cost-reducing country (CRC) conducts process R&D investment, a firm from a quality-improving country (QIC) makes product R&D investment, and the governments in the res...

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Bibliographic Details
Published in:Journal of economics (Vienna, Austria) Austria), 2017-11, Vol.122 (3), p.267-278
Main Author: Ishii, Yasunori
Format: Article
Language:English
Subjects:
Companies
Competition
Duopoly
Economic models
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Investment policy
Investments
Macroeconomics/Monetary Economics//Financial Economics
Microeconomics
Policy making
Prices
Public Finance
R&D
Research & development
Social and Behav. Sciences
Subsidies
Vice
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Summary:This study models an international duopoly under "asymmetrical" R&D investment rivalry, in which a firm from a cost-reducing country (CRC) conducts process R&D investment, a firm from a quality-improving country (QIC) makes product R&D investment, and the governments in the respective countries implement R&D policies for their own firms. We analyze the relationship between firms' R&D investment-price decisions and governments' R&D policies. We find that an increase in the process (product) R&D investment subsidy of the CRC (QIC) raises the process (product) R&D investment of its firm, but reduces the product (process) R&D investment of its rival firm, and vice versa. We also show that, while an increase in the process (product) R&D investment of the CRC's (QIC's) firm increases its output, it decreases its rival's output, and vice versa. Furthermore, we demonstrate that, while an increase in the process R&D investment of the CRC's firm reduces the prices of both firms, an increase in the product R&D investment of the QIC's firm raises its own price, but reduces its rival's, and vice versa. Finally, we find that the optimal R&D investment policies of both countries are subsidy policies, when their firms act under asymmetrical R&D investment rivalry.
ISSN:0931-8658
1617-7134
DOI:10.1007/s00712-017-0548-2