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Price Collusion and Stability of Research Partnerships

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  • Kaz Miyagiwa

Abstract

This 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 Info

Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0415.

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Date of creation: Oct 2004
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Handle: RePEc:emo:wp2003:0415

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