R&D Policy Involving Consumer-Friendly Strategy: Cooperative and Non-Cooperative R&D

In a highly globalized economy, foreign exporting firms have initiatives to be consumer friendly for many reasons. The aim of the present paper is to endogenize consumer-friendly actions by the exporting firms, and explore how government’s industrial policy and firm’s R&D investment are affected by the strategy of foreign exporting firms under cooperative and non-cooperative R&D commitments in an international rivalry market. It finds that consumer-friendly action is a dominant strategy equilibrium, and no matter whether under cooperative or non-cooperative R&D, a consumer-friendly firm tends to invest less than does the purely profit-maximizing firm on R&D under symmetrical decisions. In the case of firms cooperating in R&D and involving consumer-friendliness in action, their governments need not intervene. On the other hand, governments always subsidize non-cooperative R&D activities, or cooperative but unfriendly firms. Furthermore, the consumer-friendly action will result in more (less) R&D subsidies by the exporting government when both firms non-cooperate (cooperate) in R&D. Finally, it is robust to indicate that the government of an importing country prefers friendly foreign firms in any circumstances. Above all, the equilibrium outcomes explain the crucial role of consumer-friendly strategy for industrial policies and R&D activities.     

The determinants of successful R&D consortia: government strategy for the servitization of manufacturing

The Taiwanese government has started to promote the concept of the ??servitization of manufacturing?? with a view to accelerating the servitization of the country??s manufacturing industries. The objective is to enable Taiwan??s industries to progress from manufacturing toward innovation, R&D, and services. The main purpose of this study is to explore the factors determining the formation of R&D consortia among Taiwanese firms. In a literature review and analysis, we distinguish the factors underlying the formation of these R&D consortia into internal and external factors. The findings show that four external factors are positively significant: the degree of industry competition, the appropriability conditions of innovations, government subsidies, and cooperation between firms in different industries. Firm size and firm age are among the internal factors that are significantly positive in the formation of R&D consortia.     

Signalling cost with investment in compatibility

When buyers value products in terms of the expected compatibility between the current and the new vintage, firms can invest strategically in R&D to control for the switching costs. Open announcements of R&D budgets transmit information. The announcements determine the buyers' beliefs of the compatibility. As only an efficient firm finds it optimal to have a large R&D-budget, a firm can signal its unit cost. The likely outcome is a unique separating equilibrium if the marginal cost of R&D is low but the uncertainty over the rival's unit cost large. With high R&D cost, the dominating motive is to affect the rival's cost belief.     

Subsidizing Away Exports? A Note on R&D-policy Towards Multinational Firms

In this paper, I investigate whether instead of strengthening home-based production, government R&D-subsidies can induce R&D-intensive firms to locate production abroad. Investigating firm-level data on Swedish MNEs, however, I find no evidence of such relocation. R&D subsidies rather tend to encourage export production at the expense of foreign production. The theory presented suggests that this is consistent with technology transfer costs, which outweigh trade costs for physical goods.     

R&D Investments in Markets with Network Effects

We consider process R&D investments of firms in markets with network effects and incomplete product compatibility. Our results indicate that network effects increase the firms’ individual investments in R&D. The presence of network effects weakens the positive impact of R&D cooperation on firms’ R&D investments. Further, we show that R&D competition can bring socially optimal level of investment, and this is not possible in markets without network effects. Finally, our results suggest that innovation policy oriented at promoting R&D cooperation between enterprises can be counterproductive in markets with network effects and incomplete product compatibility.

     

Tax incentives… or subsidies for business R&D?

We study whether firms’ actual use of R&D subsidies and tax incentives is correlated with financing constraints -internal and external- and appropriability difficulties and investigate whether both tools are substitutes. We compare the use of both policies by SMEs and by large firms and find significant differences both across instruments and across firm size. For SMEs, financing constraints are negatively correlated with the use of tax of credits, while they are positively associated with the likelihood of receiving a subsidy. The use of legal methods to protect intellectual property is positively correlated with the probability of using tax incentives, but not with the use of subsidies. For large firms external financing constraints are correlated with instrument use, but results regarding appropriability are ambiguous. Our findings suggest that (1) direct funding and tax credits are not perfect substitutes in terms of their ability to reach firms experiencing barriers associated to market failures; (2) one size may not fit all in innovation policy when the type or intensity of market failure differs across firm size, and (3) subsidies may be better suited than tax credits to encourage firms, especially young knowledge-based firms, to start doing R&D.     

R&D investments in family and founder firms: An agency perspective

Investments in R&D can influence a firm's ability to develop new products and to create and adopt innovative technologies that may enhance productivity. However, due to uncertainty regarding the outcome, investments in R&D may lead to an agency problem between the owners and the managers of a firm. Family and founder firms are often considered to be different in their agency situation than other firms, which may have an influence on R&D investments. This paper analyzes R&D spending in family and founder firms versus other firms. The results show that while family ownership decreases the level of R&D intensity, ownership by lone founders has a positive effect not only on R&D intensity but also on the level of R&D productivity. The paper contributes to the understanding of the role of entrepreneurship in making high risk/high return R&D decisions.     

Joint ventures in patent contests with spillovers and the role of strategic budgeting

We consider an R&D contest between n firms in the presence of external spillovers. Our analysis focuses on the effects of these spillovers on joint venture activities between firms. In particular, we are interested in how different budget responsibilities within the research joint venture (RJV) affect profits of firms taking part in the joint venture and profits of their non-cooperating rival firms. Three arrangements for RJVs are analyzed: First, cooperation, in which the firms participating in the joint venture completely share the research they create in the innovation process and each firm has a sovereign budget responsibility. Second, a collusive arrangement in which the participating firms not only share their research but have joint budget responsibilities in the sense that they make all strategic choices cooperatively and maximize joint profits. Third, a hierarchical form, in which the cooperating firms establish joint headquarters which have strategic budget responsibility in the sense that it can strategically subsidize R&D efforts of its member firms so as to maximize overall RJV profits. We show that the first two arrangements can be mimiced in the hierarchical structure and that a hierarchical structure is optimal if it completely subsidizes its members’ R&D activities. In this case all rival firms are driven out of the contest.     

The impact of public R&D subsidy on small firm productivity: evidence from Korean SMEs

This paper explores the effects of R&D promotion policy on SME performance. We use a large panel data set on public R&D subsidies to Korean manufacturing firms. We control for counterfactual outcomes employing the DID (difference in differences) estimation procedure as well as for the endogeneity of the R&D investment and the R&D subsidy using the 2-stage Tobit/Logit DPD (dynamic panel data) procedure. We find significant evidence for positive effects of the public R&D subsidy on both the R&D expenditure and the value added productivity of Korean manufacturing SMEs. The policy thus appears to have been successful in fostering technological advancement and in promoting economic growth.     

A reappraisal of strategic trade policies with the endogenous mode of competition under vertical structures

This paper examines the endogenous choice of competition mode with strategic export policies in vertically related markets when each upstream firm located in each country determines the terms of the two-part tariff contract by maximizing generalized Nash bargaining. We show that (i) choosing Cournot (Bertrand) competition is the dominant strategy for both downstream firms when goods are substitutes (complements), which leads Pareto superior regardless of the nature of goods under the optimal trade policies; (ii) irrespective of rival’s competition mode, the optimal trade policy is an export subsidy under Cournot competition and an export tax under Bertrand competition; and (iii) trade liberalization may give rise to changes of competition mode and increase of social welfare.     

Globalization, R&D and the iPod Cycle

This paper constructs a dynamic scale-free North-South model of trade with endogenous innovation. In the North a local-sourcing-targeted race and an outsourcing-targeted R&D race take place simultaneously within each industry. The former results in the winner firm manufacturing in the North, while the latter culminates in the winner firm's immediate outsourcing to the South, generating the iPod cycle. We study three aspects of globalization: reductions in the resource-requirement in outsourcing-targeted R&D, increased subsidies to outsourced production, and reduced Southern imitation due to TRIPs. Each event boosts outsourcing-targeted R&D and increases the frequency of iPod cycles. The aggregate innovation rate rises despite a possible fall in local-sourcing-targeted R&D, and the North-South relative wage decreases.     

Beyond Trade Costs: Firms’ Endogenous Access to International Markets

In this paper, we explore another factor besides trade costs that can affect firms’ exports: strategic interaction between firms in R&D investment. Three results can be highlighted. First, the volume of trade is higher in the presence of R&D than in the absence of it, given that R&D reduces marginal costs. Second, like with reductions in trade costs, international trade grows with increases in the return on R&D, since technological progress enhances firms’ competitiveness. Third, when firms differ in commitment power in R&D, the R&D leader plays strategically in R&D in order to become more competitive and to be more active in international markets than the R&D follower.     

Cooperative and non-cooperative R&D and trade costs

We examine the effect of trade liberalization on the level and mode of R&D in an international duopoly setting. Firms have the choice to invest in R&D either independently or cooperatively. A reduction in trade cost increases R&D irrespective of the mode of R&D. However, an increase in spillovers has ambiguous effects on R&D. More precisely, we find that an increase in spillover leads to higher R&D activity under cooperation but lower R&D activity under non-cooperation. Concerning cooperation versus non-cooperation, we find that firms prefer cooperation only if trade costs are low. Consumers are better off under cooperation if spillovers are high. We find that there can be a mismatch between private and social incentives. If spillovers are low and trade costs are low then cooperation might be privately profitable but socially undesirable. On the other hand, if there are large spillovers and high trade costs then cooperation may be socially desirable but not privately profitable.     

Inflation,R&D and growth in an open economy

This study explores the long-run effects of inflation in a two-country Schumpeterian growth model with cash-in-advance constraints on consumption and R&D investment. We find that increasing domestic inflation reduces domestic R&D investment and the growth rate of domestic technology. Given that economic growth in a country depends on both domestic and foreign technologies, increasing foreign inflation also affects the domestic economy. When each government conducts its monetary policy unilaterally to maximize the welfare of domestic households, the Nash-equilibrium inflation rates are generally higher than the optimal inflation rates chosen by cooperative governments who maximize the welfare of both domestic and foreign households. Under the CIA constraint on R&D (consumption), a larger market power of firms amplifies (mitigates) this inflationary bias. We use cross-country panel data to estimate the effects of inflation on R&D and also calibrate the two-country model to data in the Euro Area and the US to quantify the welfare effects of decreasing the inflation rates from the Nash equilibrium to the optimal level.     

Economic returns to industrial research

This paper investigates the relationship between R&D and corporate performance. The study extends previous research by examining the conditions under which firms benefit from R&D; by incorporating in the analysis the varying costs of R&D inputs; and by employing an opportunity-cost approach that estimates the monetary returns to R&D. The findings indicate that industrial research generates revenues that are significantly higher than the returns that other investments yield. The study also resolves previously conflicting results concerning firm size, and offers new insights on the role of technological opportunities that contradict past studies. Although the potential for innovation is greater in high-tech industries, intense R&D competition prevents technologically dynamic firms from enjoying high returns to R&D. By contrast, the results demonstrate that low-tech firms use R&D successfully as part of their strategies, implying that prior research underestimates the importance of R&D for these firms.     

Overcoming the double hurdles to investing in technology

Technological activities of small and medium-sized enterprises (SMEs) have received considerable attention from researchers and policy makers since the mid-1980s. Small firms could nurture entrepreneurship and facilitate the creation and application of new ideas. In spite of their potential in generating innovations, it is also observed that SMEs shy away from formal R&D activities, and the firm size itself seems to be a barrier for R&D activities. SMEs operating in developing countries face extra hurdles to investing in R&D. Given the massive share of SMEs, it becomes crucial to realize their developmental potential in developing countries. In this paper, we study the drivers of R&D activities in SMEs in Turkish manufacturing industries by using panel data at the establishment level for the 1993–2001 period. Our findings suggest that SMEs are less likely to conduct R&D, but if they overcome the first obstacle of conducting R&D, they spend proportionally more on R&D than the LSEs do. R&D intensity is higher in small than in large firms. Moreover, public R&D encourages firms to intensify their R&D efforts. The impact of R&D support is stronger for small firms.     

Forschungsförderung in Deutschland — effektiv und zielgerichtet?

Public subsidies for research and development (R&D) are acknowledged to stimulate R&D activities. But Oliver Koppel complains that the subsidies are only used to support projects directly, while tax incentives remain lacking, especially in Germany, one of only a few OECD countries without tax-based research funding. Concerning small and medium-sized enterprises, the authors demand that decision makers account for their heterogeneous nature by further differentiating these firms based on activity and other factors.     

R&D organization and technology transfer

In this paper we consider a Cournot duopoly model to examine the effects of licensing on R&D organization. When firms do cooperative R&D to share the cost of R&D, possibility of licensing can influence the decision on R&D organization. But, if the firms do cooperative R&D to avoid duplication in R&D process, possibility of licensing may influence the decision on R&D organization, provided one firm behaves like a Stackelberg leader in the product market.     

R&D spending,strategic position and firm performance

Based on R&D investment data from Chinese listed manufacturing firms, this paper examines the effect of R&D spending on firms’ future performance conditional on their strategic positions. We find that firms pursing a product differentiation strategy have more R&D spending than those with a cost leadership strategy. In addition, we document a positive effect of R&D spending on firms’ future performance if they adopt a product differentiation strategy. Meanwhile, for the firms that adopt a cost leadership strategy, the relationship between R&D spending and firm performance resembles an inversed U-shape. Furthermore, we find this inversed U-shape relationship only exists for non-state-owned firms. Overall, this paper provides guidance and useful suggestions on the efficient allocation of R&D resources for Chinese manufacturing firms.     

Innovation and Trade Policy Coordination: The Role of Firm Heterogeneity

Recent studies have concluded that R&D grants can induce firms to export and that exporting and innovating can be complementary activities at the firm level. Yet the trade literature has paid little attention to the scope of innovation policy as a stimulus to both trade and innovation. To investigate this question, we rely on a general workhorse model of trade and firm heterogeneity with firm investments in R&D activities. The interplay of innovation and trade policies uncover novel results. In particular, we show that the effects of either policy depend on the degree of protectionism in a country. Therefore, countries can respond differently to the same policy, and similarly to different policies. In such a context, different governments may face different trade‐offs in achieving a given target.