International Process R&D Competition in the Presence or Absence of Government Intervention

This paper analyzes and compares the equilibrium levels of R&D, output, price, firm profit, social welfare, and consumer surplus in a third country in the presence and absence of government intervention. Moreover, it compares some results in the case that governments intervene in the market with R&D subsidies or taxes to those in a case in which governments intervene in the market with export subsidies or taxes. We show that the optimal R&D subsidy is positive regardless of the efficiency of R&D and the nature of goods, except independent goods. This result is similar to the case of an export subsidy. We also show that the results from the comparison of the equilibrium levels of output, price, firm profit, and social welfare with and without government intervention are similar to those from a case where governments intervene in the market with export subsidies or taxes.