Horizontal Agreements and R&D Complementarities: Merger versus RJV
AbstractWe study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and, if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger, there is a probability that an RJV contract will fail to enforce R&D sharing. We find that a horizontal agreement always arises. The insiders' merger/RJV choice involves a trade-off: While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater brand similarity and contract enforceability ("quality") both favour RJV, while greater R&D complementarity favours merger. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible.
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 13_12.
Date of creation: May 2012
Date of revision:
horizontal merger; research joint venture (RJV); contract enforceability; process R&D; R&D complementarity;
Other versions of this item:
- Ben Ferrett & Joanna Poyago-Theotoky, 2012. "Horizontal Agreements and R&D Complementarities: Merger versus RJV," Discussion Paper Series 2012_04, Department of Economics, Loughborough University, revised Apr 2012.
- Joanna Poyago-Theotoky & Ben Ferrett, . "Horizontal Agreements and R&D Complementarities: Merger versus RJV," CRIEFF Discussion Papers 1201, Centre for Research into Industry, Enterprise, Finance and the Firm.
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-COM-2012-05-22 (Industrial Competition)
- NEP-INO-2012-05-22 (Innovation)
- NEP-IPR-2012-05-22 (Intellectual Property Rights)
- NEP-TID-2012-05-22 (Technology & Industrial Dynamics)
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