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NON‐UNIFORM STRATEGIC TRADE POLICY AND AGGREGATE PROFIT CREATION EFFECT
Author(s) -
Jo SeungGyu
Publication year - 2010
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2010.00534.x
Subject(s) - oligopoly , economics , incentive , welfare , profit (economics) , microeconomics , commercial policy , aggregate (composite) , market structure , industrial organization , international economics , market economy , materials science , composite material
This paper illustrates a new theoretical case for a strategic R&D policy in a two‐country third‐market international oligopoly model. Asymmetric treatment of domestic firms through a non‐uniform R&D policy can create aggregate profits without a foreign retaliation concern and further improve national welfare in addition to what a uniform policy accomplishes. This effect occurs when the conventional Brander–Spencer incentive is entirely absent as well as when the uniformly optimal R&D policy initially prevailed. The superiority of non‐uniform policy to uniform‐policy is not guaranteed, however, when the number of firms becomes endogenous.