Profitability, success probabilities, and incentives for cooperative R&D

Wen-Chung Guo

Economics Bulletin, 2011, vol. 31, issue 1, 309-314

Abstract: As is widely conjectured, duopolists form a cost-sharing cooperative R&D alliance to develop a product - regardless of the probability of research success is either very high or very low. This study establishes that most low probabilities of research success cannot induce a financially successful cooperative R&D alliance. Incorporating the constraints in non-negative expected profits eliminates more than 95% probability of the parameter space where the probability of success is lower than 0.5. Our results further demonstrate that non-negative expected profits are attainable when the monopoly profit is not large in relation to duopoly profits, the fixed cost of R&D investment is low and the demand is large.

Keywords: Cooperative R&D; uncertainty; profitability (search for similar items in EconPapers)
JEL-codes: D4 O3 (search for similar items in EconPapers)
Date: 2011-01-14
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