A Dynamic Analysis of Cooperative Research in the Semiconductor Industry
International Economic Review, Forthcoming.
39 Pages Posted: 26 Feb 2009 Last revised: 26 Aug 2010
Date Written: July 7, 2010
In this paper I construct a dynamic oligopolistic model of research joint ventures (RJVs). In my model, when firms form an RJV, they invest to improve product quality, and fully share the rewards of research success. RJVs benefit firms by eliminating duplicative research efforts, but firms also give up the possibility of becoming a solo innovator. Consumers benefit from lower prices, but may have to wait longer for new products to arrive. I show that RJVs are welfare enhancing by quantitatively evaluating these trade-offs with data from the semiconductor industry. I also analyze how changes in product market competition affect research cooperation.
Keywords: Research Joint Venture, Dynamic Model of Oligopoly, Product Innovation, Firm Heterogeneity
JEL Classification: C73, D92, L63, O31
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