Rebolledo, M. and J. Sandonís
Economics of Innovation and New Technology – 21.8 (2012) 815-825

Keywords: R&D subsidies, Oligopoly, Asymmetric Information, Strategic Complements, Strategic Substitutes

Abstract: The effectiveness of R&D subsidies is analyzed in an oligopolistic model that we apply to the cases of international R&D competition and cooperation. We find that the existence of asymmetric information among firms on whether a rival (or partner) is being subsidized or not may play a key role to explain whether subsidies are effective or not to increase R&D investments. In particular, it is shown that if the existence of the subsidy is made public (for example because strict information release regulation about subsidies is enforced), and depending on the strategic relationship between firms’ R&D efforts, an R&D subsidy could even hurt the subsidized firm.