R&D Rivalry and Cooperation in Duopoly: Firm Organization, Welfare and Policy Implications
The objective of the paper is to reveal the optimal organization of industry when firms, facing externalities, compete or cooperate in R&D as well as in the final output market. The model hinges on a two-stage game setting. A ranking of solutions is established for alternative organizations. We focus on welfare issues and allow for public intervention. Subsidizing R&D is used to draw the industry to match the social welfare solution. The paper shows that targeting the optimal level of R&D leaves final output fall short of the welfare solution. Whereas targeting the final output leads to overinvestment in R&D. The ranking of policies reveals that the most efficient industry organization occurs when firms cooperate and fully share R&D results, but remain competitive in the final good market.(original abstract)
- Anselin L., Varga A. and Acs Z. (1997): Local Geographic Spillovers between University Research and Technology Innovation. "Journal of Urban Economics" Vol. 42, Iss. 3, pp. 422-448.
- Carayol N. (2003): Objectives, Agreements and Matching in Science-Industry Collaborations: Reassembling the Pieces of the Puzzle. "Research Policy", Vol. 32, pp. 887-908.
- Dasgupta P. and Stiglitz J. (1988): Potential Competition, Actual Competition and Economic Welfare. "European Economic Review", 32, pp. 569-577.
- d'Aspermont C. and Jacquemin A. (1988): Cooperative and Noncooperative R&D in Duopoly with Spillovers. "American Economic Review", 78, pp. 1133-1137.
- De Bondt R., Slaets P. and Cassiman B. (1992): The Degree of Spillovers and the Number of Rivals for Maximum Effective R&D. "International Journal of Industrial Organization", 10, pp. 35-54.
- Henriques I. (1990): Cooperative and Noncooperative R&D in Duopoly with Spillovers: Comment. "American Economic Review", 80, pp. 638-640.
- Jacquemin A. (1988): Cooperative Agreements in R&D and European Anti-Trust Policy. "European Economic Review", 32, pp. 551-560.
- Kamien M., Muller E. and Zang I. (1992): Research Joint Ventures and R&D Cartels. "American Economic Review", 82, pp. 1293-1306.
- Katz M. (1986): An Analysis of Cooperative Research and Development. "Rand Journal of Economics", 17, pp. 527-543.
- Reinganaum J. (1989): Practical Implications of Game Theoretic Models in R&D. "American Economic Review", 74, pp. 61-66.
- Spence M. (1984): Cost Reduction, Competition, and Industry Performance. "Econometrica", 52, pp. 101-121.
- Spencer B. and Brander J. (1983): International R&D Rivalry and Industrial Strategy. "Review of Economic Studies", 50, pp. 707-722.
- Suzumura K. (1992): Cooperative and Noncooperative R&D in an Oligopoly with Spillovers. "American Economic Review", 82, pp. 1307-1320.
- Van Long N. and Soubeyran A. (1996): R&D Spillovers and Location Choice under Cournot Rivalry. Working Paper GREQAM 96a35, Université Aix-Marseille III.