R&D subsidies in a duopoly market with outsourcing to the rival firm

This paper investigates the effects of a public uniform R&D subsidy policy in a downstream duopoly market in which a nonintegrated firm, which faces a lower marginal cost, outsources inputs from its vertically integrated rival. The findings show that, in this market structure, such a policy has relevant effects largely differentiated between downstream competitors, as it can significantly modify the relative market shares and profitability of competing firms. Unlike the standard Cournot setting augmented with R&D, results show that the subsidy policy can have different (counterintuitive) effects on R&D investments, output, and profits of the vertically integrated producer and the vertically separated firm, which hold in both cases of exogenous and endogenous (optimal) subsidy. Our findings offer some testable implications and suggest that a subsidy policy in a market with outsourcing to a rival should also consider the different effects of this approach on competitors.     

Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership

Focusing on foreign ownership in the private firm, we examine the Cournot-Bertrand comparison in a mixed oligopolistic market with vertical market structure. We have found that if public and private firms were charged with uniform price for their inputs, then Cournot-Bertrand ranking in market outcomes confirms those obtained by Ghosh and Mitra (2010). This implies that under uniform pricing in the upstream sector, the vertical market structure does not have substantial influences on Cournot-Bertrand ranking. However, if discriminatory pricing is adopted, firm's profits, output, and social welfare are often reversed to those obtained from uniform pricing in the upstream sector. Given the closeness of products, if the share of foreign ownership is sufficiently low, social welfare in Cournot competition can exceed that of Bertrand competition, contrasting with the standard welfare ranking that Bertrand welfare is strictly higher than Cournot. This implies that Cournot competition can be more socially desirable than Bertrand in mixed oligopoly with vertical market structure if discriminatory pricing scheme is adopted by foreign upstream monopolists.     

Entry of foreign firms and the R&D behaviour: a panel data study of domestic and foreign firms in China's manufacturing sector

Rapid globalization has resulted in increased competitive pressures. The entry of foreign firms in a host economy increases the level of competition faced by not only the domestic firms but also the existing foreign firms. We argue that domestic firms, especially in developing countries, respond to this situation by increasing their research and development (R&D) spending, whereas the foreign firms decrease their R&D spending. By making use of firm-level panel data from China's manufacturing sector, over the period 2005–2007, this paper investigates the impact of the entry of foreign firms on R&D behaviour of domestic and foreign firms. Empirical analysis, based on Tobit and Instrumental Variables Tobit regression, reveals that foreign entry increases the R&D intensity of domestic firms but its impact on R&D intensity of foreign firms is negative. The estimated results are found to be robust across balanced and unbalanced panels.