International Trade Policy towards Monopoly and Oligopoly

27 Pages Posted: 20 Feb 2009

See all articles by Praveen Kujal

Praveen Kujal

Universidad Carlos III de Madrid - Department of Economics

Juan M. Ruiz

Banco de España - Department of International Economics

Date Written: February 19, 2009

Abstract

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.

Keywords: product differentiation, strategic trade policy, policy reversals, r&d subsidies, monopoly, duopoly

JEL Classification: F12, F13, l13

Suggested Citation

Kujal, Praveen and Ruiz Perez, Juan Manuel, International Trade Policy towards Monopoly and Oligopoly (February 19, 2009). Banco de Espana Working Paper No. 0901, Available at SSRN: https://ssrn.com/abstract=1346870 or http://dx.doi.org/10.2139/ssrn.1346870

Praveen Kujal

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 6249651 (Phone)
+34-91 6249875 (Fax)

HOME PAGE: http://www.eco.uc3m.es/english/staff/contact_info/

Juan Manuel Ruiz Perez (Contact Author)

Banco de España - Department of International Economics ( email )

Alcala 48
28014 Madrid
Spain
+34 913384334 (Phone)
+34 913386212 (Fax)

HOME PAGE: http://www.eco.uc3m.es/~jruiz/

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