Regulatory Protection When Firms Decide First on Technical Collaboration and R&D

Abstract

AbstractWe investigate the imposition of a horizontal technical barrier to trade (HTBT) in a symmetric, cross‐hauling duopoly. Tariffs and subsidies are ruled out, but, in the absence of a mutual recognition agreement, governments can impose HTBTs, so long as firms operate different technologies. With firms being first movers, this possibility may induce them to avoid technical collaboration, in order to tempt governments into creating national monopolies, unless spillovers in R&D are high. This exacerbates the costs of regulatory protection, compared to standard models without R&D or spillovers.