R&D Alliances as Non-cooperative Supergames
AbstractR&D alliances (Research Joint Ventures or other institutional forms) normally involve repeated, non-contractible actions (investments in R&D), and uncertainty regarding both success and the termination date. Accordingly, we model these agreements as equilibria of infinite-period supergames. Our approach is normative, namely that of finding optimal equilibria from the perspective of the firms involved in the agreement. The results show that repeated interaction allows for important gains in equilibrium pay-offs. The optimal solutions are still inefficient from the firms’ perspective, however. The sources of inefficiency include delay in investment outlays, suboptimal levels of investment, and abandonment of profitable projects. Lastly, we consider R&D cooperation between firms that also interact in the product market. In some cases, product market interaction is irrelevant from the perspective of optimal R&D agreements. In other cases, optimal agreements imply that firms behave more aggressively in the product market.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1439.
Date of creation: Jul 1996
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Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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