R&D-cooperating laggards versus a technological leader

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Abstract:

We consider a modification of the standard two-stage model wherein two high-cost firms conduct cost-reducing R&D, in a setting with spillovers, and then Cournot compete against a low-cost firm that engages in no R&D. Two R&D cooperation scenarios are presented: the R&D cartel and the joint lab. The lagging firms choose a higher R&D level in a cartel, and a fortiori in a joint lab, as compared to R&D competition, and consumer surplus is higher, if and only if the spillover rate is larger than 1/3. The comparisons between firms' profits and social welfare under the three R&D scenarios are also characterized.

Keywords: Asymmetric firms; R&D cooperation; Spillovers

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/1043890410001686815

Publication date: December 1, 2004

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