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Cooperation v/s Non-cooperation in R&D Competition with Spillovers

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  • Radhika Lahiri

Abstract

This paper seeks to analyse a case in which firms choose to divide their R&D expenditures into two components: competitive R&D and Joint-Venture R&D. The analysis is motivated by the fact that R&D outputs can have different degrees of non-excludability. It is therefore reasonable to expect that a firm will allocate a part of its funds to competitive R&D; this is the case in areas in which research is non-excludable to a smaller degree, and part of it to Joint-Venture R&D, in cases where R&D output is highly non-excludable. This issue is addressed in a three-stage model of a duopoly, in which joint-venture R&D and competitive R&D are chosen in the first and second stages while the quantity of the product is chosen in the third stage. The results confirm that allocation of expenditure to the joint-venture component increases as the spillover rate on the competitive component increases. Furthermore, if firms are able to coordinate their joint-venture R&D levels, there is greater incentive to increase this allocation. However, for these results to obtain, it is crucial that the two types of R&D are chosen sequentially; a simultaneous choice would lead to a corner solution in which only competitive R&D is chosen.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2003/DP%20166%20Lahiri.pdf
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Bibliographic Info

Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 166.

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Date of creation: 20 Dec 2003
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Handle: RePEc:qut:dpaper:166

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