Endogenous timing game with R&D decisions and output subsidies

This paper investigates strategic choices between duopolistic firms’ R&D investments and government’s output subsidies in an endogenous timing game with research spillovers. We show that a simultaneous-move game among three players appears at equilibrium if the spillovers are very low while government leadership with both firms’ simultaneous-move game appears otherwise. We also show that government followership appears unless the spillovers are low or high, while both the government leadership and followership outcomes are socially desirable at quilibrium. However, a single firm’s leadership equilibrium appears if the spillovers are high, but it causes a welfare loss.