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Strategic Investment Subsidies under Asymmetric Oligopoly
Author(s) -
Jinji Naoto,
Toshimitsu Tsuyoshi
Publication year - 2014
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12098
Subject(s) - oligopoly , subsidy , commit , investment (military) , economics , competitor analysis , microeconomics , industrial organization , market economy , cournot competition , management , database , politics , computer science , political science , law
This paper examines strategic investment subsidies in an international oligopoly. A general oligopoly model is constructed in which firms compete in two stages and governments commit to investment subsidies prior to firms' actions. The paper considers asymmetry among firms that arises from the nature of goods they produce rather than their cost structures. When firms produce asymmetrically differentiated goods, it is found that a change in the number of foreign competitors may alter the sign of the optimal unilateral investment subsidy. An example of policy reversal is provided in the case of strategic research and development subsidies for a quality‐differentiated industry.