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Knowledge‐sharing arrangements are an important part of the innovation process as they help firms acquire technological capabilities, shorten development time, and spread risk and cost. A question central to the study of knowledge‐sharing arrangements is the impact of competition on cooperation. While cooperation has the benefit of avoiding duplication, it may have an adverse effect on the competitive advantage of a leading firm. Hence, firms face a difficult challenge during the innovation process while deciding which components of it, if any, to carry out in collaboration with other firms. This paper reports the results of controlled laboratory experiments which identify how the decision to form research joint ventures changes with both relative progress during the R&D process and the intensity of product market competition. The design is based on a modified version of Erkal and Minehart “Optimal Sharing Strategies in Dynamic Games of Research and Development.” Research Paper 1038, University of Melbourne, Department of Economics, 2008. The results indicate that if expected profits are such that the lagging firms always stay in the race, cooperation unravels as firms move forward in the discovery process and as monopoly profits become more attractive. These results are generally consistent with the theoretical predictions. (JEL C91, L24, O30, D81)
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Document Type: Research Article

Affiliations: 1: Department of Economics, University of Arkansas, Fayetteville, AR 72701. Phone +1 479 575 6226, Fax: +1 479 575 3241 2: Department of Economics, University of Melbourne, Victoria 3010, Australia. Phone +61 3 8344 3307, Fax: +61 3 8344 6899

Publication date: April 1, 2013

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