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Quality-improving and cost-reducing strategic alliances

Fabio Dio () and Luca Correani ()
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Fabio Dio: European Commission, DG Joint Research Centre, Directorate B-Growth and Innovation, Unit B1-Finance and Economy
Luca Correani: University of Tuscia

Economia Politica: Journal of Analytical and Institutional Economics, 2020, vol. 37, issue 2, No 6, 493-524

Abstract: Abstract We develop a two-stage Salop-type model to examine quality-improving and process innovation alliances in an oligopolistic context. In the first stage, a network of alliances among firms is assumed while in the second stage firms set prices, product quality and cost-reducing process innovation. We find that quality-improving networks tend to be denser than networks characterized by process innovation sharing, while the quality effort decreases with the number of connections. Furthermore, link formation is welfare improving if both absorptive capacity and quality spillovers are sufficiently small. Although the empirical evidence on cooperation in R&D is fragmentary it nonetheless supports most of the theoretical predictions. We also formulate some variants of the model to assess the robustness of the previous results.

Keywords: Networks; Salop model; Process and product innovation (search for similar items in EconPapers)
JEL-codes: E27 E60 Q40 Q58 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s40888-020-00177-6

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Economia Politica: Journal of Analytical and Institutional Economics is currently edited by Alberto Quadrio Curzio

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Handle: RePEc:spr:epolit:v:37:y:2020:i:2:d:10.1007_s40888-020-00177-6