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International R&D Rivalry and Industrial Strategy

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  • Barbara J. Spencer
  • James A. Brander

Abstract

This paper presents a theory of government intervention which provides an explanation for "industrial strategy" policies such as R&D or export subsidies in imperfectly competitive international markets. Each producing country has an incentive to try to capture a greater share of rent-earning industries using subsidies, but the subsidy-ridden international equilibrium is jointly suboptimal. The equilibrium in the strategic game involving firms and governments is modelled as a three stage subgame perfect Nash equilibrium. The assumption that the government is the first player in this game allows it to influence equilibrium industry outcomes by altering the set of credible actions open to firms.

Suggested Citation

  • Barbara J. Spencer & James A. Brander, 1983. "International R&D Rivalry and Industrial Strategy," NBER Working Papers 1192, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1192
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    References listed on IDEAS

    as
    1. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-389, August.
    2. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    3. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Paper 517, Economics Department, Queen's University.
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    7. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
    8. Basevi, Giorgio, 1970. "Domestic Demand and Ability to Export," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 330-337, March-Apr.
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