Research of R&D Subsidies, Technological Spillovers and R&D Investment with Product Differentiation

Considering the government's incentive policies to technological innovation, the technological spillovers of R&D process and product differentiation, this paper constructs a investment model of technological innovation for two competing firms producing differentiated products. First, we obtain equilibrium solution of the number of production, profits and R&D investment under Cournot competition without considering time. The optimal R&D subsidies under the maximization of social welfare and the conditions for the existence of optimal R&D subsidies are derived, and the relationships among R&D subsidies, technological spillovers, product differentiation and R&D investment are analyzed. The result shows that when the product differentiation is small and R&D subsidies are lower, there are negative correlation between the R&D investment and technology spillovers. When the product differentiation is larger and R&D subsidies are higher, there are positive correlations between the R&D investment and technology spillovers. Furthermore, taking account of the successful time of R&D firms are different, the paper also analyzes the impact of product differentiation, technological spillovers and R&D subsidies on R&D successful time considering the interest in the model, and derives the optimal conditions in the case of the maximization of social welfare.