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Role of Government Support on R&D in Development of Exporting Industries in International Duopoly Markets
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Younes Brumand *   , Kiumars Shahbazi |
| urmia university , y.brumand@yahoo.com |
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Abstract: (3634 Views) |
In strategic trade policy, governments support their domestic firms in many ways in order to promote their performance in the international field. One of these ways is R&D subsidies. In this paper, the strategic interaction among two governments and two firms which exporting homogenous commodities to the global market is analyzed using the game theory. The interaction is analyzed in a two-stage dynamic game with complete but imperfect information setting, which in the first stage, governments decide about granting or not granting the subsidies to their domestic firms, and in the second stage, firms decide whether allocate resources to R&D or not. The unique subgame perfect equilibrium of the game indicates that governments support their domestic firms and firms allocate some resources to the R&D process. Although this outcome may result in the prisoner's dilemma for governments in developed countries, it is an optimal solution for developing countries such as Iran. The equilibrium is also consistent with the general policies of the resistive economy.
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| Keywords: R&D Subsidy, Strategic Trade Policy Subgame Perfect Equilibrium |
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Full-Text [PDF 1372 kb]
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Type of Study: Research |
Subject:
Special
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