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Collusion through Joint R&D: An Empirical Assessment

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  • Duso, Tomaso
  • Röller, Lars-Hendrik
  • Seldeslachts, Jo

Abstract

This paper tests whether upstream R&D cooperation leads to downstream collusion. We consider an oligopolistic setting where firms enter in research joint ventures (RJVs) to lower production costs or coordinate on collusion in the product market. We show that a sufficient condition for identifying collusive behavior is a decline in the market share of RJV-participating firms, which is also necessary and sufficient for a decrease in consumer welfare. Using information from the US National Cooperation Research Act, we estimate a market share equation correcting for the endogeneity of RJV participation and R&D expenditures. We find robust evidence that large networks between direct competitors – created through firms being members in several RJVs at the same time – are conducive to collusive outcomes in the product market which reduce consumer welfare. By contrast, RJVs among non-competitors are efficiency enhancing.

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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 343.

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Date of creation: Nov 2010
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Handle: RePEc:trf:wpaper:343

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Keywords: Research Joint Ventures; Innovation; Collusion; NCRA;

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Citations

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Cited by:
  1. Michael D. Koenig & Xiaodong Liu & Yves Zenou, 2014. "R&D Networks: Theory, Empirics and Policy Implications," Discussion Papers, Stanford Institute for Economic Policy Research 13-027, Stanford Institute for Economic Policy Research.
  2. Tannista Banerjee & Ralph Siebert, 2014. "The Impact of R&D Cooperations on Drug Variety Offered on the Market. Evidence from the Pharmaceutical Industry," CESifo Working Paper Series 4567, CESifo Group Munich.
  3. Tannista Banerjee & Stephen Martin, 2013. "Pharmaceutical regulation and innovative performance: a decision-theoretic model," Auburn Economics Working Paper Series, Department of Economics, Auburn University auwp2013-21, Department of Economics, Auburn University.
  4. Hinloopen, J. & Smrkolj, G. & Wagener, F.O.O., 2013. "In Defense of Trusts: R&D Cooperation in Global Perspective," CeNDEF Working Papers 13-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  5. Daniel Rondeau & Pascal Courty & Maurice Doyon, 2013. "Simultaneous Allocation of Bundled Goods Through Auctions: Assessing the Case for Joint Bidding," CIRANO Working Papers, CIRANO 2013s-37, CIRANO.
  6. Subhasish M. Chowdhury & Stephen Martin, 2011. "Innovation Races with the Possibility of Failure," Working Papers, University of Otago, Department of Economics 1106, University of Otago, Department of Economics, revised Aug 2011.
  7. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market," Discussion Papers in Economics 16182, University of Munich, Department of Economics.
  8. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets," Discussion Papers in Economics 16179, University of Munich, Department of Economics.
  9. Ralph Siebert, 2013. "Are Ex Ante and Ex Post Licensing Agreements Useful Instruments to Lessen Uncertainty in R&D?," CESifo Working Paper Series 4535, CESifo Group Munich.

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