Information Sharing, R&D Collaboration, and R&D Subsidy in International Markets

This paper examines the roles that information sharing, R&D collaboration, and government R&D subsidy play in affecting the competitiveness of domestic firms in international markets. Using a simple three-firm two-country model and a simulation approach, we first analyze the strategies of information sharing versus R&D collaboration and find that the latter is more profitable than the former regardless of the rate of spillovers internalized. It is also shown that both strategies are able to generate a profit-shifting effect as that discussed in the literature on strategic trade policy. We then use an equivalent approach to analyze the effect of government R&D subsidy policy when the domestic firms do not engage in cooperative research. Our simulation results suggest that both information sharing and R&D collaboration among firms are superior to R&D subsidy. Further, R&D collaboration in the form of research joint venture is the best strategy in enhancing the domestic firms' international market competitiveness.