The Design of Vertical R&D Collaborations

Herbst, Patrick; Walz, Uwe

doi:10.2139/ssrn.1341183

The Design of Vertical R&D Collaborations

39 Pages Posted: 12 Feb 2009 Last revised: 7 May 2013

See all articles by Patrick Herbst

Patrick Herbst

University of Stirling - Department of Accounting and Finance

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Leibniz Institute for Financial Research SAFE

There are 2 versions of this paper

Date Written: May 7, 2013

Abstract

Suppliers play a major role in downstream firms' innovation processes. We analyze ownership allocations and the choice of technology in vertical research and development (R&D) cooperations. Given that R&D outcomes are not contractible, there is a trade-off between R&D specifically designed towards a manufacturer (increasing investment productivity) and a general technology (hold-up reduction). We find that in too few cases the market solution yields the specific technology. More intense product market competition shifts optimal ownership towards the supplier. The use of exit clauses increases the gains from the collaboration.

Keywords: Managing innovations, vertical R&D collaboration, choice of technology

JEL Classification: L22, L24, O31, O32

Suggested Citation: Suggested Citation

Herbst, Patrick and Walz, Uwe, The Design of Vertical R&D Collaborations (May 7, 2013). Available at SSRN: https://ssrn.com/abstract=1341183 or http://dx.doi.org/10.2139/ssrn.1341183