Strategic Effect of Bilateral R&D Subsidy with Technology Spillover

Under the condition of bilateral R&D subsidies, this paper attempts to examine the effect of different technology spillover degree on output and profit which can benefit firms to make flexible choice on market strategy between technology innovation and imitation. Our results show that with the bilateral R&D subsidy, whatever the degree of intellectual property protection is in domestic market, R&D subsidy can promote market outputs. However, profits of firms in two countries decrease monotonically with low R&D spillover degree, on the contrary, the pattern of monotone rise in both output and profit without any technology protection. And if given a moderate spillover level, the profit rises significantly in the initial stage and then falls when the subsidy quantity reaches a certain level. (C) 2011 Published by American Applied Sciences Research Institute