Optimal Concentration and R&D Policies under Dual Government Goals

The present study examines the optimal concentration and R&D subsidy/taxation policies under the dual government goals of maximizing current welfare and achieving technological superiority internationally (national champions) in an oligopolistic trading market. We find that, in order to maximize the domestic welfare, the optimal number of firms in the industry should increase in accordance with the increases in the R&D subsidies. If there are multiple firms in the domestic market, the optimal R&D policy should involve the imposition of an R&D tax and such taxation should increase as the number of firms increases. For the government to achieve its goal of seeking technological superiority, the optimal policy mix will be to increase the domestic concentration and reduce the R&D tax. When the importance of being technological superior to the government exceeds a certain level, the optimal R&D strategy will be to shift from an R&D tax to an R&D subsidy.