Horizontal Agreements and R&D Complementarities: Merger versus RJV

Joanna Poyago-Theotoky and Ben Ferrett

No 1201, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: We study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and, if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger, there is a probability that an RJV contract will fail to enforce R&D sharing. We find that a horizontal agreement always arises. The insiders' merger/RJV choice involves a trade-off: While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater brand similarity and contract enforceability ("quality") both favour RJV, while greater R&D complementarity favours merger. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible.

Keywords: horizontal merger; research joint venture (RJV); contract enforceability; process R&D; R&D complementarity. (search for similar items in EconPapers)
JEL-codes: D43 L13 O30 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://crieff.files.wordpress.com/2012/08/dp1201.pdf (application/pdf)

Related works:
Journal Article: Horizontal Agreements and R&D Complementarities: Merger versus RJV (2016)
Working Paper: Horizontal Agreements and R&D Complementarities: Merger versus RJV (2012)
Working Paper: Horizontal Agreements and R&D Complementarities: Merger versus RJV (2012)
Working Paper: Horizontal Agreements and R&D Complementarities: Merger versus RJV (2012)
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: https://EconPapers.repec.org/RePEc:san:crieff:1201

Access Statistics for this paper

More papers in CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm Department of Economics, Castlecliffe, The Scores, St Andrews, KY16 9AZ. Contact information at EDIRC.
Bibliographic data for series maintained by Department of Economics, The University of St Andrews Business School ().