International Trade Policy towards Monopolies and Oligopolies Articles uri icon



publication date

  • June 2009

start page

  • 461

end page

  • 475


  • 3


  • 17

International Standard Serial Number (ISSN)

  • 0965-7576

Electronic International Standard Serial Number (EISSN)

  • 1467-9396


  • This paper highlights the importance of product differentiation and endogenous R&D in determining the optimal R&D policy, in a model where investment in cost-reducing R&D is committed before firms compete in a
    differentiated-goods third-country export market. R&D is always taxed in
    oligopolies for high degrees of product differentiation. For lower degrees of
    product differentiation the duopoly is subsidized or the government remains
    inactive. In contrast, the monopoly is always subsidized. The government with a
    duopoly may be active or inactive depending on the degree of product
    differentiation. Thus, we may observe a reversal in the sign of the optimal
    R&D policy if the degree of product differentiation changes or,
    alternatively, if there is a change in the number of firms. Similar qualitative
    results hold if trade policy uses output subsidies, instead of R&D promotion.