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Youping Li, Cristina M. Reiser and Zhou Yang
''Inducing R&D investment with price ceilings''
( 2010, Vol. 30 No.2 )
Though government intervention is prevalent in the market for research and development (R&D), most literature has focused on the use of subsidies, patents or joint research ventures to obtain the efficient R&D investment. By using a two-stage duopoly model in which firms first choose the level of investment and then output, our paper shows that the introduction of a price ceiling by the regulator will result in the optimal level of R&D. This interesting but counterintuitive result contrasts with the existing literature and advances our understanding about price ceilings.
Keywords: Research and development; Subsidy; Price ceiling
JEL: D2 - Production and Organizations: General
D4 - Market Structure and Pricing: General
Manuscript Received : Apr 12 2010 Manuscript Accepted : May 26 2010

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