Cooperative R&D under Uncertainty with Free Entry

Nisvan Erkal ()

No 999, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: In the last few decades, the effects of cooperative R&D arrangements on innovation and welfare have played an important role in policy making. The goal of this paper is to analyze the effects of cooperative R&D arrangements in a model with a stochastic R&D process and output spillovers. Our main innovation is to allow for free entry in both the R&D race and the product market. To determine the desirability of cooperation in R&D environments, we compare three different ways of organizing R&D activities: R&D competition, R&D cartels, and RJV cartels. In contrast with the literature, we assume that cooperative R&D arrangements do not have to include all of the firms in the industry. We show that sharing of research outcomes is a necessary condition for the profitability of cooperative R&D arrangements with free entry. The profitability of RJV cartels depends on their size. The impact of cooperative R&D arrangements on the aggregate level of innovation depends on whether there are participants in the R&D race who are a part of the cooperative R&D arrangement. If some outsiders choose to participate in the R&D race, the aggregate rate of innovation remains unaffected by the formation of a cooperative R&D arrangement. Otherwise, it increases. R&D cartels may be welfare-improving in cases when they cause the aggregate rate of innovation to increase. In such cases, it may be desirable to subsidize them. Since sharing of R&D outcomes affects the equilibrium number of firms in the product market after the R&D race, the consumer welfare effects of RJV cartels are sensitive to the specification of consumer preferences. Subsidies may be desirable in cases of larger RJVs since they are the ones which are less likely to be profitable.

Keywords: Cooperative R&D; Research joint ventures; Free entry; Uncertain R&D; Technology spillovers. (search for similar items in EconPapers)
JEL-codes: L1 L4 O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ino, nep-ipr, nep-mic and nep-tid
Date: 2007
View list of references

Downloads: (external link)
http://www.economics.unimelb.edu.au/SITE/research/workingpapers/wp07/999.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:mlb:wpaper:999

Access Statistics for this paper

More papers in Department of Economics - Working Papers Series from The University of Melbourne
Address: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
Contact information at EDIRC.
Series data maintained by Colemann Leong ().