The Impact of Cooperative R&D and Advertising on Innovation and Welfare

Parisa Pourkarimi () and Gamal Atallah
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Parisa Pourkarimi: Carleton University

Journal of Quantitative Economics, 2020, vol. 18, issue 1, No 7, 143-167

Abstract: Abstract This paper studies the impact of cooperative R&D and advertising on innovation and welfare in a duopolistic industry. The model incorporates two symmetric firms producing differentiated products. Firms invest in R&D and advertising in the presence of R&D spillovers and advertising spillovers. Advertising spillovers may be positive or negative. Four cooperative structures are studied: no cooperation, R&D cooperation, advertising cooperation, R&D and advertising cooperation. R&D spillovers and advertising spillovers always increase innovation and welfare if products are highly differentiated and/or spillovers are sufficiently high. The ranking of cooperation settings in terms of R&D, profits and welfare depends on product differentiation, R&D spillovers and advertising externalities. Firms always prefer cooperation on both dimensions, which is socially beneficial only when advertising and R&D spillovers are sufficiently high.

Keywords: R&D; Advertising; Cooperation; Spillovers; Product differentiation; Innovation (search for similar items in EconPapers)
JEL-codes: D43 L13 O32 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s40953-019-00176-w

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