Essays in R&D and competition policy in an open economy setting

Abstract

This dissertation examines the effect of trade on competition policy and R&D. We examine these issues in the form of three essays. The first essay explores the impact of trade policy on entry regulation in an open economy setup. We find that under an open economy framework free entry can lead to a socially insufficient number of firms can arise. This contrasts the results obtained under closed economy setup where a socially excessive entry would arise. Furthermore, we find that as trade is liberalized the possibility of socially insufficient entry becomes more likely. This implies that more restrictive merger policies should be pursued as trade barriers are. In our second essay, we expand upon this model by incorporating intermediate goods. In our model foreign firms produce an intermediate input which is used by the domestic firm to produce the final product. Under this framework we find that socially insufficient entry can occur under a wide range of parameterizations. Furthermore we find that as trade barriers are reduced the possibility of insufficient entry becomes less likely. In our final essay, we explore the effects of trade liberalization on R&D. We find that as trade is liberalized firms prefer to undertake more R&D. Furthermore, cooperation in R&D is preferred as trade barriers are reduced. Cooperation is not necessary beneficial for consumers, specifically if trade barriers and spillovers are low. Thus R&D tax credit and R&D taxes can assume a significant role to ensure that consumers’ interests are accounted for.