NON‐UNIFORM STRATEGIC TRADE POLICY AND AGGREGATE PROFIT CREATION EFFECT

This paper illustrates a new theoretical case for a strategic R&D policy in a two‐country third‐market international oligopoly model. Asymmetric treatment of domestic firms through a non‐uniform R&D policy can create aggregate profits without a foreign retaliation concern and further improve national welfare in addition to what a uniform policy accomplishes. This effect occurs when the conventional Brander–Spencer incentive is entirely absent as well as when the uniformly optimal R&D policy initially prevailed. The superiority of non‐uniform policy to uniform‐policy is not guaranteed, however, when the number of firms becomes endogenous.