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R&D Delegation in a Duopoly with Spillovers

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Author Info

  • Bruno Versaevel

    ()
    (GATE CNRS)

  • Désiré Vencatachellum

    ()
    (HEC Montréal)

Abstract

There is evidence that competing firms delegate R&D to the same independent profit-maximizing laboratory. We draw on this stylized fact to construct a model where two firms in the same industry offer transfer payments in exchange of user-specific R&D services from a common laboratory. Inter-firm and within-laboratory externalities affect the intensity of competition among delegating firms on the intermediate market for technology. Whether competition is relatively soft or tight is reflected by each firm's transfer payment offers to the laboratory. This in turn determines the laboratory's capacity to earn profits, R&D outcomes, delegating firms' profits, and social welfare. We compare the delegated R&D game to two other ones where firms (i) cooperatively conduct in-house R&D, and (ii) non-cooperatively choose in-house R&D. The delegated R&D game Pareto dominates the other two games, and the laboratory earns positive profits, only if within-laboratory R&D services are suffciently complementary but inter-firm spillovers are suffciently low. We find no room for policy intervention, because the privately profitable decision to delegate R&D, when the laboratory participates, always benefits consumers.

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Bibliographic Info

Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 0610.

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Length: 72 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:gat:wpaper:0610

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Keywords: common agency; externalities; research and development;

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Cited by:
  1. Etienne Billette De Villemeur & Richard Ruble & Bruno Versaevel, 2011. "Coordination and Cooperation in Investment Timing with Externalities ?," Post-Print halshs-00639471, HAL.
  2. Evans, Shane, 2010. "Innovation contracts with leakage through licensing," Working Papers 10282, University of Tasmania, School of Economics and Finance, revised 05 Oct 2010.
  3. Noriaki Matsushima & Koki Arai & Ikuo Ishibashi & Fumio Sensui, 2011. "The effects of non-assertion of patents provisions: R&D incentives in vertical relationships," ISER Discussion Paper 0807, Institute of Social and Economic Research, Osaka University.

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