This paper develops a theoretical model of product innovation where research and development (R&D) effort by a monopolist firm is endogenous and its outcome uncertain. The government attempts to aid such efforts with a matching grant. We consider different scenarios depending on whether two parties act simultaneously, act sequentially, or take part in a dynamic cooperative game with a trigger strategy. We also consider cases (i) when the products are exported, (ii) when the firm lobbies for R&D subsidy, and (iii) when the firm is foreign owned. We characterize situations when government intervention increases the chances of product innovation and when it does not.
Buryi, P., & Lahiri, S.
(2016). Matching Public Support for Private Product-Innovating R&D: A Theoretical Analysis. Economics of Innovation and New Technology, 26 (4), 295-310.
Economics of Innovation and New Technology
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