Market Access and Leadership in Product Innovation: A Model of Trade Policy for High-Technology Industries

The model investigates the possible relationships between market structure, product innovation and trade policy. It is shown that the speed of product innovation is most rapid with a more fragmented market structure and in a free trade regime. Under free trade the origin of the leader in product innovation is indeterminate. If a country unilaterally restricts access to its home market without incurring retaliation, then it increases profits compared to free trade and it ensures also leadership in product innovation. [F13]