The ineffectiveness of R&D subsidies—An oligopoly theoretic insight

In several European countries, governments subsidise private firms in their product development. Existing empirical literature indicates that these subsidies do not have much impact on firms' R&D efforts. It is suggested that this inefficiency may reflect strategic, oligopolistic behaviour: not to apply for subsidies is a strategic commitment to non-aggressive behaviour. Firms may be willing to apply for subsidies mainly when they know they are not going to affect their R&D efforts significantly.