Collusion Through Joint R&D: An Empirical Assessment
German Institute for Economic Research (DIW Berlin); Duesseldorf Institute for Competition Economics (DICE)
ESMT European School of Management and Technology; Centre for Economic Policy Research (CEPR); WZB Berlin Social Science Center - Competitiveness and Industrial Change
University of Amsterdam; Tinbergen Institute
November 8, 2010
Tinbergen Institute Discussion Paper 10-112/1
This paper tests whether upstream R&D cooperation leads to downstream collusion. We consider an oligopolistic setting where firms enter in research joint ventures (RJVs) to lower production costs or coordinate on collusion in the product market. We show that a sufficient condition for identifying collusive behavior is a decline in the market share of RJV-participating firms, which is also necessary and sufficient for a decrease in consumer welfare. Using information from the US National Cooperation Research Act, we estimate a market share equation correcting for the endogeneity of RJV participation and R&D expenditures. We find robust evidence that large networks between direct competitors - created through firms being members in several RJVs at the same time - are conducive to collusive outcomes in the product market which reduce consumer welfare. By contrast, RJVs among non-competitors are efficiency enhancing.
Number of Pages in PDF File: 41
Keywords: Research Joint Ventures, Innovation, Collusion, NCRA
JEL Classification: K21, L24, L44, D22, O32
Date posted: November 9, 2010
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