Optimal Product R&D Policies with Endogenous Quality Choices and Unilateral Spillover

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  • Yumiko Taba
    Faculty of Education and Integrated Arts and Sciences, Waseda University, Nishi-Waseda 1-6-1, Shinjuku-ku, Tokyo 196-8050, Japan

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<jats:title>Abstract</jats:title> <jats:p>This study derives non-cooperative and cooperative optimal product research and development (R&D) policies of a country with a high-quality firm and a country with a low-quality firm in the presence of technology spillover under Cournot and Bertrand competitions in an international duopoly. When the respective governments determine their R&D policies non-cooperatively, optimal policies for both countries involve an R&D tax (subsidy) if spillover is large (small). When the governments choose their R&D policies cooperatively, a tax is always optimal for the country with low-quality firm and a subsidy (tax) is optimal for the country with high-quality firm if spillover is large (small). In addition, we show that the non-cooperative optimal product R&D Policy is tax for a wider range of spillover effects under Cournot competition, compared to the case of Bertrand competition.</jats:p>

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