Subsidy and entry: the role of licensing

Author: Mukherjee, A.

Source: Oxford Economic Papers, Volume 54, Number 1, 1 January 2002 , pp. 160-171(12)

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Abstract:

The strategic trade literature has mainly examined the importance of per-unit subsidies or taxes. Unlike the earlier works, a fixed amount of subsidy has been considered in this paper. This paper shows that even if this subsidy policy does not affect the marginal calculations of the firms, this policy can significantly alter other incentives of the firms. A commitment to the subsidy policy can encourage the foreign firm to license its technology to the domestic firm which, in turn, helps to increase the welfare of the domestic country. We find that, in equilibrium, the government of the domestic country does not need to provide the subsidy. We have also analyzed the role of the foreign government.

Document Type: Original article

Affiliations: 1: Department of Economics, Keele University, Keele, ST5 5BG; and Technische Universiteit Eindhoven, The Netherlands; email: a.mukherjee@econ.keele.ac.uk

Publication date: 2002-01-01

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Oxford Economic Papers is a general economics journal, publishing refereed papers in economic theory, applied economics, econometrics, economic development, economic history, and the history of economic thought. It occasionally publishes survey articles in addition to original papers. Books are not reviewed, but substantial review articles are considered. The journal occasionally publishes survey articles in addition to original papers, and occasionally publishes special issues or symposia.