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The Allocation of Resources to Cooperative and Noncooperative R&D

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Author Info
Gamal Atallah

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Abstract

The precompetitive R&D literature has viewed cooperative and noncooperative R&D as substitutes. In this paper a more realistic approach is taken, where both cooperative and noncooperative R&D are performed in parallel. In the first stage firms determine the optimal investments in both types of R&D, and in the second stage they compete in output. It is found that information sharing between cooperating firms contributes not only to cooperative R&D, but also to noncooperative R&D. The two types of R&D reinforce each other. The level of cooperative R&D may be higher or lower than noncooperative R&D. In a Cournot duopoly, the share of cooperative R&D lies between 20% and 80% of total R&D, and this share increases with spillovers and information sharing. It is always optimal to subsidize half the costs of cooperative R&D, while the subsidy to noncooperative R&D is unchanged form the standard model. Consumers prefer intermediate levels of spillovers and information sharing, while firms prefer higher levels of spillovers, which entail lower levels of information sharing.

La littérature sur la R&D préconcurentielle a toujours considéré la coopération et la non-coopération comme des substituts. Dans ce papier, on adopte une approche plus réaliste, où la R&D coopérative et non-coopérative sont effectuées en parallèle. Dans la première étape, les firmes investissent dans les deux types de R&D. Dans la deuxième étape, elles se concurrencent en quantités. Il est démontré que le partage d'information entre les firmes contribue à la R&D non-coopérative, en plus de contribuer à la R&D coopérative. Chaque type de R&D renforce l'autre, impliquant une complémentarité entre les deux. L'investissement en R&D coopérative peut être supérieur ou inférieur à l'investissement en R&D non-coopérative. Dans un duopole de Cournot, la part de la R&D coopérative se situe entre 20% et 80% de la R&D totale, et cette part augmente avec les externalités de recherche et le partage d'information. Il est optimal de subventionner la moitié des coûts de la R&D coopérative, alors que la subvention à la R&D non-coopérative est inchangée par rapport au modèle standard. Les consommateurs préfèrent des niveaux intermédiaires d'externalités de recherche et de partage d'information, alors que les firmes préfèrent des niveaux plus élevés d'externalités, ce qui implique des niveaux très faibles de partage d'information.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2004s-01.

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Date of creation: 01 Jan 2004
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Handle: RePEc:cir:cirwor:2004s-01

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Keywords: R&D; cooperative R&D; innovation; R&D subsidies; R&D policy; spillovers; information sharing; R&D; coopération en R&D; innovation; subventions à la recherche; politique de R&D; externalités de recherche; partage d'information;

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cockburn, Iain M & Henderson, Rebecca M, 1998. "Absorptive Capacity, Coauthoring Behavior, and the Organization of Research in Drug Discovery," Journal of Industrial Economics, Blackwell Publishing, vol. 46(2), pages 157-82, June. [Downloadable!] (restricted)
  2. Den Hertog, R.G.J. & Thurik, A.R., 1992. "Determinants on Internal and ExternalR & D : Some Dutch Evidence," Papers 9237-a, Erasmus University of Rotterdam - Econometric Institute.
  3. Arora, Ashish & Gambardella, Alfonso, 1990. "Complementarity and External Linkages: The Strategies of the Large Firms in Biotechnology," Journal of Industrial Economics, Blackwell Publishing, vol. 38(4), pages 361-79, June. [Downloadable!] (restricted)
  4. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December. [Downloadable!] (restricted)
  5. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September. [Downloadable!] (restricted)
  6. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Audretsch, D-B & Menkveld, A-J & Thurik, A-R, 1996. "The Decision Between Internal and External R&D," Papers 9603/e, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM.
  8. Jeroen Hinloopen, 1997. "Subsidizing R&D-Cooperatives," CIE Discussion Papers 1997-15, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  9. Gamal Atallah, 2003. "Information sharing and the stability of cooperation in research joint ventures," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 12(6), pages 531-554, January. [Downloadable!] (restricted)
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  10. Michael L. Katz, 1986. "An Analysis of Cooperative Research and Development," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 527-543, Winter.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marc Bourreau & Pinar Dogan & Matthieu Manant, 2007. "Modularity and Product Innovation in Digital Markets," Review of Network Economics, Concept Economics, vol. 6(2), pages 175-193, June. [Downloadable!]
  2. Bourreau, Marc & Dogan, Pinar, 2007. "Cooperation in Product Development and Process R&D Between Competitors," Working Paper Series rwp07-056, Harvard University, John F. Kennedy School of Government. [Downloadable!]
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