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Leahy, Dermot
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Leahy, Dermot
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Leahy, Dermot
Research Output
Now showing 1 - 10 of 15
- PublicationExport enhancing tariff protection with strategic precommitmentThe import protection as export promotion thesis is examined from a positive and normative perspective in a series of two-stage games in which firms choose R&D and capacity in the first stage and quantity or price in the second. It is shown (i) that a tariff affects exports in two ways; firstly, with increasing marginal cost it crowds out exports; secondly by increasing R&D and/or capacity it raises exports indirectly, (ii) when firms choose R&D and quantities a small tariff will raise welfare. This result can be reversed under Bertrand competition.
59 - PublicationStrategic trade and industrial policy towards dynamic oligopoliesWe characterize optimal trade and industrial policy in dynamic oligopolistic markets. If governments can commit to future policies, optimal first-period intervention should diverge from the profit-shifting benchmark to an extent which exactly offsets the strategic behaviour implied by Fudenberg and Tirole's "fat cats and top dogs" taxonomy of business strategies. Without government commitment, there is an additional basis for intervention, whose sign depends on the stategic substitutability between future policy and current actions. We consider a variety of applications (to R&D spillovers, consumer switching costs, etc.) and extensions to second-best, revenue-constrained and entry-promotion policies.
522 - PublicationLearning by doing in international subsidy gamesA series of two-period, three-stage games with learning by doing is developed. In the first stage firms choose first-period outputs. Then governments choose export subsidies. Finally firms choose second-period outputs. I show (i) firms use first-period outputs strategically to manipulate export subsidies and the second-periods outputs of rivals. (ii) These strategic effects are weakened when experience is diffused and by a third government tariff. (iii) When initial costs are symmetric and home residents partly own the foreign firm home outputs and subsidies exceed their foreign counterparts. These differentials increase in the speed of learning.
70 - PublicationFollow-my-leader FDI and collusionThis paper presents a simple model to illustrate the following idea: domestic rivals may be motivated to setup foreign production in the same country because the replication of each other’s foreign direct investment (FDI) facilitates collusive behaviour in the market in which they compete. This implies positive interdependence between firms’ FDI decisions, i.e. foreign investment by one firm brings increased incentive for others to follow-suit. So, we highlight a mechanism that propagates FDI clusters: a flurry of investment from one country, or region, to another.
164 - PublicationInternational R&D rivalry and industrial strategy without government commitmentWe examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfare are higher when government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment thus yields welfare gains (though they are small) but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all.
257 - PublicationStrategic and rent extracting tariffs in the presence of persuasive advertisingThis paper examines positive and normative implications of tariffs in the presence of persuasive advertising. It demonstrates that protection affects imports, the domestic consumer price and the terms of trade directly and through its effect on the level of advertising. If protection reduces advertising a Metzler paradox can occur. A tariff can be used to induce foreigners to allow entry. Jointly optimal tariffs and advertising taxes and the optimal tariff for the situation when it is the only available policy instrument are derived under both monopoly and Cournot oligopoly.
63 - PublicationInternational R&D rivalry and industrial strategy without government commitmentWe examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfare are higher in an equilibrium in which government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment yields gains but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all.
366 - PublicationAbsorptive capacity, R&D spillovers, and public policy(University College Dublin. Institute for the Study of Social Change (Geary Institute), 2003-10-20)
; Empirical evidence strongly suggests that R&D increases a firm’s "absorptive capacity" (its ability to absorb spillovers from other firms) as well as contributing directly to profitability. We explore the theoretical implications of this. We specify a general model of the absorptive capacity process and show that costly absorption both raises the effectiveness of own R&D and lowers the effective spillover coefficient. This weakens the case for encouraging research joint ventures, even if there is complete information sharing between its members. It also implies an additional strategic pay-off to policies that raise the level of extra-industry knowledge.433 - PublicationAbsorptive capacity, R&D spillovers, and public policyEmpirical evidence strongly suggests that R&D increases a firm’s "absorptive capacity" (its ability to absorb spillovers from other firms) as well as contributing directly to profitability. We explore the theoretical implications of this. We specify a general model of the absorptive capacity process and show that costly absorption both raises the effectiveness of own R&D and lowers the effective spillover coefficient. This weakens the case for encouraging research joint ventures, even if there is complete information sharing between its members. It also implies an additional strategic pay-off to policies that raise the level of extra-industry knowledge.
354 - PublicationLearning by doing, precommitment and infant-industry protectionThis paper examines the implications for strategic trade policy of different assumptions about precommitment. In a dynamic oligopoly game with learning by doing, the optimal first-period subsidy is lower if firms cannot precommit to future output than if they can; and is lower still if the government cannot precommit to future subsidies. In the linear case the optimal subsidy is increasing in the rate of learning with precommitment, but decreasing in it if the government cannot precommit. The infant-industry argument is thus reversed in the absence of precommitment, which has important implications for economic policy in dynamic environments.
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