Price Collusion and Stability of Research Partnerships
AbstractThis paper addresses two questions: 1) Does R&D cooperation facilitate price collusion; and 2) Why do R&D partnerships break up at high rates (20% in one estimate)? Innovation creates an interfirm cost asymmetry, which makes collusion difficult to sustain. The prospect of collusion ending with discovery makes collusion difficult to maintain before discovery. R&D cooperation averts this chain reaction and facilitates collusion before and after innovation. However, the firms' inability to monitor partners' R&D inputs constrains the extent of cooperation. To curb the opportunism, the partnership may dissolve itself with positive probability every time it fails to innovate.
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Bibliographic InfoPaper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0415.
Date of creation: Oct 2004
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-12-02 (All new papers)
- NEP-COM-2004-12-02 (Industrial Competition)
- NEP-IND-2004-12-02 (Industrial Organization)
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