Many markets are characterized by a high level of inter-firm collaboration in R&D activity. This paper develops a simple model of strategic networks which captures two distinctive features of such collaboration activity: bilateral agreements and non-exclusive relationships. We study the effects of collaborations on individual R&D effort, cost reduction, and market performance. We then examine the incentives of firms to form collaborative links and the architecture of strategically stable networks. Our analysis highlights the interaction between market competition and R&D network structure. We find that if firms are Cournot competitors then individual R&D effort is declining in the level of collaborative activity. However, cost reduction and social welfare are maximized under an intermediate level of collaboration. In some cases, firms can gain market power, and even induce exit of rival firms, by forming suitable collaboration agreements. Moreover, under certain circumstances, such asymmetric collaboration networks are also strategically stable. By contrast, if firms operate in independent markets then individual R&D effort is increasing in the level of collaborative activity. Cost reduction and social welfare are maximized under the complete network, which is also strategically stable.
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Paper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number
202.
Goyal, Sanjeev & Moraga-Gonzalez, Jose Luis, 2001.
"R&D Networks,"
RAND Journal of Economics,
The RAND Corporation, vol. 32(4), pages 686-707, Winter.
Paper
Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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MAULEON, Ana & SEMPERE-MONERRIS, Jose & VANNETELBOSCH, Vincent J., 2005.
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MAULEON, Ana & SEMPERE-MONERRIS, JosŽ & VANNETELBOSCH, Vincent J., 2004.
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