Empirical evidence strongly suggests that R&D increases a firm’s ‘absorptive capacity’ (its ability to absorb spillovers from other firms) as well as contributing directly to profitability. We explore the theoretical implications of this. We specify a general model of the absorptive...

In this chapter we present a selective analytic survey of some of the main results of trade under oligopoly. We concentrate on three topics: oligopoly as an independent determinant of trade, as illustrated by the reciprocal-markets model of Brander (1981); oligopoly as an independent rationale...

This paper examines the free-market and socially-optimal outcomes in a dynamic oligopoly model with R&D spillovers. First-best optimal subsidies to R&D are higher when firms play strategically against each other, but lower when they cooperate on R&D (at least with high spillovers) and when they...

We introduce the concept of cooperative substitutes and complements, and use it to throw light on the conditions for a research joint venture to choose equal levels of R&D by all member firms. We show that the second-order conditions for a symmetric optimum take a particularly simple form,...

This paper endogenises the extent of intra-sectoral competition in a multi-sectoral model of oligopoly in general equilibrium. Firms choose capacity followed by prices. If the benefits of capacity investment in a given sector are below a threshold level, the sector exhibits Bertrand behaviour,...

In this paper we consider the case for subsidies towards firms which generate R&D spillovers in open economies. We show that in the presence of strategic behaviour by firms many expected results are overturned. Local R&D spillovers to other domestic firms may justify an R&D tax rather than a...

The theory of strategic trade policy yields ambiguous recommendations for assistance to exporting firms in oligopolistic industries. Some writers have, however, suggested that investment subsidies are a more robust recommendation than export subsidies. We show that, though ambiguous in...

We present a new model of multi-product firms (MPFs) and flexible manufacturing and explore its implications in partial and general equilibrium. International trade integration affects the scale and scope of MPFs through a competition effect and a demand effect. We demonstrate how MPFs adjust in...

A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital market liberalisation. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under...

This paper examines the implications for strategic trade policy of different assumptions about precommitment. In a dynamic oligopoly game with learning by doing, the optimal first-period subsidy is lower if firms cannot precommit to future output than if they can; and is lower still if the...