Non-uniform strategic trade policy and aggregate profit creation effect

This paper illustrates a new theoretical case for a strategic R&D policy in a two-country third-market international oligopoly model. Asymmetric treatment of domestic firms through a non-uniform R&D policy can create aggregate profits without a foreign retaliation concern and further improve national welfare in addition to what a uniform policy accomplishes. This effect occurs when the conventional Brander-Spencer incentive is entirely absent as well as when the uniformly optimal R&D policy initially prevailed. The superiority of non-uniform policy to uniform-policy is not guaranteed, however, when the number of firms becomes endogenous. © 2010 The Authors. Scottish Journal of Political Economy © 2010 Scottish Economic Society.