Regulatory Protection and Spillovers When Firms Decide First on Collaboration

We investigate the imposition of a horizontal technical barrier to trade (HTBT) in a symmetric, cross-hauling duopoly. Tariffs and subsidies are ruled out, but, in the absence of a mutual recognition agreement, it is possible for governments to impose HTBTs, so long as firms apply different technologies. If firms are first movers, this possibility may induce them to avoid technical collaboration, in order to tempt governments into creating national monopolies, except where spillovers and R&D effects are high. This exacerbates the costs of regulatory protection, compared to standard models without R&D or spillovers.