A Public Firm's R&D Policy and Trade Liberalization

Tomaru, Yoshihiro (2010): A Public Firm's R&D Policy and Trade Liberalization.

Abstract

This paper studies a public firm's incentive to raise its productive efficiency by undertaking cost-reducing R&D investment when it competes against a foreign private firm. Our focus is to ravel out how a decrease in an importing tariff levied on foreign goods affects this investment level inter alia. We show that when the government imposes non-negative tariffs, a tariff reduction lowers the R&D investment, irrespective of whether the public firm has downward or upward sloping reaction curve. Namely, R&D investment conducted by the public firm is substitutable to an importing tariff. Furthermore, under a linear demand assumption, it is concluded that a tariff reduction necessarily enhances world welfare if both R&D investment and tariffs are set to domestic welfare-maximizing levels. More strict assumptions on marginal cost and R&D cost function make complete trade liberalization desirable from the viewpoint of world welfare.

• Item Type: MPRA Paper
• Language: English
• Keywords: Mixed Oligopoly; R&D; Trade Liberalization
• Subjects: L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L32 - Public Enterprises ; Public-Private Enterprises; F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

References

Bos, D. (1991). Privatization: A Theoretical Treatment. Oxford: Clarendon Press.

Cato, S.(2008a). ``Public Monopoly, Mixed Oligopoly and Productive Efficiency: A Generalization,'' Economics Bulletin vol.12, pp.1--7.

Cato, S.(2008b). ``Mixed oligopoly, productive efficiency, and spillover,'' Economics Bulletin vol.12, pp.1--5.

Chao, C-C. and Yu, E.S.H. (2006). ``Partial Privatization, Foreign Competition, and Optimum Tariff,'' Review of International Economics vol.14, pp.87--92.

d'Asprement, C. and Jacquemin, A.(1988). ``Cooperative and Noncooperative R&D in Duopoly with Spillovers,'' American Economic Review vol.78, pp.1133--1137.

De Fraja, G. and Delbono, F.(1989). ``Alternative Strategies of a Public Enterprise in Oligopoly,'' Oxford Economic Papers vol.41, pp.302--311.

Fjell, K. and Pal, D.(1996). ``A Mixed Oligopoly in the Presence of Foreign Private Firms,'' Canadian Journal of Economics vol.29, pp.737--743.

Ino, H. and Matsumura, T.(2010). ``What Role Should Public Enterprises Play in Free-Entry Markets?'' forthcoming in Journal of Economics.

Ishibashi, I. and Matsumura, T.(2006). ``R&D Competition between Public and Private Sectors,'' European Economic Review vol.50, pp.1347--1366.

Ishida, J. and Matsushima, N.(2009). ``Should Civil Servants be Restricted in Wage Bargaining? A Mixed-Duopoly Approach,'' Journal of Public Economics vol.93, pp.634--646.

Kamijo, Y. and Nakamura, Y.(2009). ``Stable Market Structures from Merger Activities in Mixed Oligopoly with Asymmetric Costs,'' Journal of Economics vol.98, pp.1--24.

Konishi, H.(1999). ``Tariff versus Quatas with Strategic Investment,'' Canadian Journal of Economics vol.32, pp.71--91.

Long, N.V. and Stahler, F.(2009). ``Trade Policy and Mixed Enterprises,'' Canadian Journal of Economics vol.42, pp.590--614.

Matsumura, T. and Kanda, O.(2005). ``Mixed Oligopoly at Free Entry Markets,'' Journal of Economics vol.84, pp.27--48.

Matsumura, T. and Matsushima, N.(2004). ``Endogenous Cost Differentials between Public and Private Enterprises: A Mixed Duopoly Approach,'' Economica vol.71, pp.671--688.

Matsumura, T., Matsushima, N. and Ishibashi, I.(2009). ``Privatization and Entries of Foreign Enterprises in a Differentiated Industry,'' Journal of Economics vol.98, pp.203--219.

Matsumura, T. and Tomaru, Y.(2010). ``Market Structure and Privatization Policy under International Competition,'' mimeo.

Matsushima, N. and Matsumura, T.(2006). ``Mixed Oligopoly, Foreign Firms, and Location Choice,'' Regional Science and Urban Economics vol.36, pp.753--772.

Megginson, W. and Netter, J.(2001). ``From State to Market: A Survey of Empirical Studies on Privatization,'' Journal of Economic Literature vol.39, pp.321--389.

Mukherjee, A. and Suetrong, K.(2009). ``Privatization, Strategic Foreign Direct Investment and Host Country Welfare,'' European Economic Review vol.53, pp.775--785.

Neary, H.M. and Ulph, D.(1997). ``Strategic Investment and the Co-existence of Labour-managed and Profit-maximizing Firms,'' Canadian Journal of Economics vol.30, pp.308--328.

Nishimori, A. and Ogawa, H.(2002). ``Public Monopoly, Mixed Oligopoly and Productive Efficiency,'' Australian Economic Papers vol.41, pp.185--190.

Okuno-Fujiwara, M. and Suzumura, K.(1993). ``Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis,'' Economic Theory vol.3, pp.43--59.

Pal, D. and White, M.D. (1998). ``Mixed Oligopoly, Privatization and Strategic Trade Policy,'' Southern Economic Journal vol.65, pp.264--281.

Petit, M-L. and Sanna-Randaccio, F.(2000). ``Endogenous R$\&$D and Foreign Direct Investment in International Oligopoly,'' International Journal of Industrial Organization vol.18, pp.339--367.

Poyago-Theotoky, J.(1996). ``R&D Competition with Asymmetric Firms,'' Scottish Journal of Political Economy vol.43, pp.334--342.

Poyago-Theotoky, J.(1998). ``R&D Competition in a Mixed Duopoly under Uncertainty and Easy Imitation,'' Journal of Comparative Economics vol.26, pp.415--428.

Poyago-Theotoky, J., Gil-Molto, M.J., and Zikos, V.(2010). ``R&D Subsidies, Spillovers and Privatization in Mixed Markets,'' Working Paper No. 10/19, University of Leicester. Available at http://works.bepress.com/joanna\_poyago\_theotoky/27

Stiglitz, J.E.(1988). Economics of the Public Sector, 2nd edn. New York: W.W. Norton.

Suzumura, K.(1992). ``Cooperative and Noncooperative R$\&$D in an Oligopoly with Spillover,'' American Economic Review vol.82, pp.1307--1320.

Tomaru, Y.(2007). ``Privatization, Productive Efficiency and Social Welfare with a Foreign Competitor,'' Research in Economics vol.61, pp.224-232.

Tomaru, Y. and Kiyono, K.(2010). ``Endogenous Timing in Mixed Duopoly with Increasing Marginal Costs,'' forthcoming in Journal of Institutional and Theoretical Economics.