R&D Cooperation with Entry

Academy of Management Proceedings, 1990

Existing theoretical models of research joint ventures have influenced anti-trust policy but have several limitations. They suggest firms are more likely to cooperate when the technology is not highly appropriable, as in basic research. They also tend to ignore motivations associated with complementarity of skills and resources among potential participants as well] as firm market share, while suggesting small firms may want to enter into joint ventures to pool resources and that anti-trust policy should permit this type of cooperation. We created an economic model that incorporates multiple factors. This suggests that, in the presence of high complementarity, firms are more likely to cooperate and more likely to succeed when the technology is highly appropriable, as in applied research. Our model also indicates large firms have a greater incentive to cooperate because they probably are better positioned to capture the benefits of a research venture. These findings seem to explain why cooperative research among rival firms in Japan has been applied rather than basic, conducted frequently among large companies, and relatively successful. But firms prefer as small a partner as possible to limit the sharing of research results, creating a tension that should make cooperative efforts among rivals difficult to manage. For this reason, cooperation through neutral organizations, such as universities or non-profit institutions, appears to be a useful alternative for rival firms wishing to pool R&D resources.

Mathematical Social Sciences, 2013

• Firms in a game of R&D and Cournot competition are caught in a prisoner's dilemma.

In a general setting with uncertainty and spillovers in R&D activity, we consider the incentive to cooperate among firms at any or all of the following three stages. Firms can jointly agree on the level of R&D expenditures, they can set up joint research facilities, and/or they can engage in an information sharing agreements, by which they agree to share any findings with the other firm. We compare expenditures on R&D, profit levels, and welfare levels across the different possible cooperative and competitive setups and offer antitrust implications. Our model differs from previous analyses in three important ways. First, most studies consider only research aimed at lowering production costs, and therefore consider only situations where total profits fall as spillovers increase. We allow for the possibility of product innovation, and define the concepts of offsetting spillovers (falling total profits) and incremental spillovers (when total profits increase as spillovers increase). Se...

2005

In a general setting with uncertainty and spillovers in R&D activity, we consider the incentive to cooperate among firms at any or all of the following three stages. Firms can jointly agree on the level of R&D expenditures, they can set up joint research facilities, and/or they can engage in an information sharing agreements, by which they agree to share any findings with the other firm. We compare expenditures on R&D, profit levels, and welfare levels across the different possible cooperative and competitive setups and offer antitrust implications. Our model differs from previous analyses in three important ways. First, most studies consider only research aimed at lowering production costs, and therefore consider only situations where total industry profits fall as spillovers increase. We allow for the industry profits to increase, and define the concepts of offsetting spillovers (falling total profits) and incremental spillovers (when total profits increase as spillovers increase)...

Journal of Optimization Theory and Applications, 2012

We consider a duopoly competing in quantity, where firms can invest in both innovative and absorptive R&D to reduce their unit production cost, and where they benefit from free R&D spillovers between them. We analyze the case where firms act non cooperatively and the case where they cooperate by forming a research joint venture. We show that, in both modes of play, there exists a unique symmetric solution. We find that the investment in innovative R&D is always higher than in absorptive R&D. We also find that the value of the learning parameter has almost no impact on innovative R&D, firms profits, consumer's surplus and social welfare. Finally, differences in investment in absorptive research and social welfare under the two regimes are in opposite directions according to the importance of the free spillover.

Arthaniti: Journal of Economic Theory and Practice, 2006

This paper studies incentives for cooperative research vis-a-vis non-cooperative research when there arc two conceivable product innovations. We show that, contrary to the literature. there are situations where non-cooperative R&D generates a larger payoff even when the success probability in R&D is high. We consider dilTercnt forms of cooperation in this context. If research cooperation has access to all these forms, cooperative R&D will dominate at least for high probability of success. We have also studied the effect of patent protection on the choice ofR&D institution. It is shown that patent protection reduces the scope of cooperation in R&D.

Research in Economics, 2008

The paper examines the main factors that affect the incentive to cooperate in R&D, inquiring into the effects of cooperation on incentives to innovate in both a complete and an incomplete contract framework. It considers several forms of cooperative agreements and studies the circumstances that make one type of cooperation, more likely than others, to emerge. Theoretical considerations suggest that two of the main factors are uncertainty and spillovers. Further, the incentive to cooperate may be greater or less among symmetric than among asymmetric firms, depending on the source of the asymmetry. When firms cooperate, in most cases they prefer a research joint venture, but because of transaction costs, moral hazard and adverse selection problems other forms of cooperation in R&D may occur. Uncertainty and spillovers also affect the size and the nature of coalitions, and in some circumstances competing research joint ventures may be formed. Finally, the paper surveys the empirical evidence and discusses its consistency with the theoretical conclusions.

International Journal of Industrial Organization, 2002

2009

In this paper we study the determinants of R&D cooperation among innovative firms using data from the Chilean Innovation Survey. We follow the empirical model developed by Cassiman and Veugelers (2002) in which cooperation is allowed to be a function of the technology of the information flows. From our main results we find that incoming spillovers, cost-risk sharing and legal protection affect positively and significantly the probability of cooperating among Chilean firms, while lack of information and firm size have a negative impact on the same variable. In our empirical approach information flows seem to have a larger impact over cooperation with universities and consulting agents. Endogeneity problems present in the model have been properly addressed using a two-stage conditional maximum likelihood test (2SCML) due to Rivers and Vuong (1988) and using an instrumental variable for the first stage estimates of incoming spillovers. th 4

2011

We consider a duopoly competing in quantity, where firms can invest in both innovative and absorptive R&D to reduce their unit production cost, and where they benefit from free R&D spillovers between them. We analyze the case where firms act non cooperatively and the case where they cooperate by forming a research joint venture. We show that, in both modes of play, there exists a unique symmetric solution. We find that the investment in innovative R&D is always higher than in absorptive R&D. We also find that the value of the learning parameter has almost no impact on innovative R&D, firms profits, consumer's surplus and social welfare. Finally, differences in investment in absorptive research and social welfare under the two regimes are in opposite directions according to the importance of the free spillover.