The paper describes quality/price equilibrium and welfare effects of R&D spillovers when firms are located around the circumference of a Salop circle, and the extent of the spillovers may depend on the geographic proximity between firms. In particular, we show that an increase in competition may have a positive effect on the provision of quality and firms' profits. We also extend the model allowing a multinational enterprise to locate at the centre of the circle. In this scenario it is important to understand the interplay of local R&D spillovers with the spillovers that propagate from and to the centre.
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