Collusion and Research Joint Ventures
Emory University - Department of Economics; Osaka University - Institute of Social and Economic Research (ISER); Florida International University (FIU) - Department of Economics
December 1, 2007
ISER Discussion Paper No. 704
We examine whether cooperation in R&D leads to product market collusion. Suppose that firms engage in a stochastic R&D race while maintaining the collusive equilibrium in a repeated-game framework. Innovation under competitive R&D creates inter-firm asymmetries, which destabilizes the collusive equilibrium. Innovation sharing through cooperative R&D preserves symmetries, thereby facilitating collusion. Sharing an efficient technology also increases industry profit, which contributes to the collusion stability but also raises social welfare. Interestingly, a welfare improvement is less likely if innovation leads to a large cost reduction. The effect of licensing under competition R&D is also examined.
Number of Pages in PDF File: 42
Keywords: Collusion, Research Joint Ventures, Innovation, R&D
JEL Classification: L12, L13
Date posted: December 17, 2007
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