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Collusion and Research Joint Ventures

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  • Kaz Miyagiwa

Abstract

We examine whether cooperation in R&D leads to product market collusion. Suppose firms compete in a stochastic R&D race while maintaining the collusive equilibrium in a repeated-game framework. Innovation creates a cost asymmetry and destabilizes the collusive equilibrium. Firms forming an R&D joint venture can maintain cost symmetries through technology sharing agreement, thereby stabilizing collusion. The stability of post-discovery collusion makes collusion stable in pre-discovery periods. However, formation of R&D cooperatives may increase social welfare because firms share an efficient technology. Interestingly, a welfare improvement is less likely if innovation leads to a large cost reduction.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0705.

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Date of creation: Mar 2007
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Handle: RePEc:emo:wp2003:0705

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