R&D Competition and Cooperation with Distance-Dependent Spillovers

Grega Smrkolj and Florian Wagener
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Grega Smrkolj: Newcastle University

No 26-041/II, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We study a continuous-time duopoly model of process innovation with R&D spillovers, comparing noncooperative R&D with cooperative research regimes. We extend the standard constant-spillover framework by allowing knowledge transmission to decay with technological distance and to favor followers over leaders in asymmetric specifications. In a global Markov-perfect model, firms may invest before production is viable, enter or exit production as costs evolve, and converge to no-market, monopoly, or duopoly outcomes. State-dependent spillovers change R&D incentives, catch-up dynamics, long-run market structure, and the welfare effects of research cooperation. In the computed equilibria, more follower-favoring spillovers weaken the leader's private incentive to invest but accelerate catch-up, shorten monopoly phases, and make eventual duopoly more likely. When spillovers are weak, cooperation mainly softens dynamic rivalry; when information sharing is substantial, cooperation expands market formation, lowers long-run costs, and can raise both consumer and total surplus, especially under the research-joint-venture regime. The value of R&D cooperation depends on the direction and persistence of knowledge flows, not only on their average intensity.

JEL-codes: C73 D43 O31 (search for similar items in EconPapers)
Date: 2026-06-29
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