A Duopoly Experiment on Cooperative and Noncooperative R&D

Abstract:     
In this paper, an experimental environment to test theoretical predictions concerning R&D behavior of firms in duopoly with allowance for R&D spillovers is created. The design and hypotheses of the experiment are based on the well-known model of d Aspremont and Jacquemin in which R&D behavior of firms either competing or cooperating in R&D, is calculated. No difference in behavior between different spillover levels is found. Further, I find that irrespective of the technological spillover level, subjects do not always commit to an R&D contract, but if they commit to an R&D level in a binding contract, cooperative R&D levels are chosen. When subjects do not or cannot commit to a contract, the subgame perfect Nash equilibrium performs well in predicting R&D decisions.

Number of Pages in PDF File: 23

Keywords: R&D, duopoly, experiment

JEL Classification: C90, L13, O31

working papers series