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Do Research Joint Ventures Serve a Collusive Function?

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  • Sovinsky, Michelle

    (Department of Economics, University of Warwick & The University of Zurich)

  • Eric Helland

    (Claremont McKenna College)

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    Abstract

    Every year thousands of firms are engaged in research joint ventures (RJV), where all knowledge gained through R&D is shared among members. Most of the empirical literature assumes members are non-cooperative in the product market. But many RJV members are rivals leaving open the possibility that firms may form RJVs to facilitate collusion. We examine this by exploiting variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies associated with a RJV. We use data on RJVs formed between 1986 and 2001 together with firm-level information from Compustat to estimate a RJV participation equation. After correcting for the endogeneity of R&D and controlling for RJV characteristics and firm attributes, we find the decision to join is impacted by the policy change. We also find the magnitude is significant: the policy change resulted in an average drop in the probability of joining a RJV of 34% among telecommunications firms, 33% among computer and semiconductor manufacturers, and 27% among petroleum refining firms. Our results are consistent with research joint ventures serving a collusive function. JEL classification: research and development ; research joint ventures ; antitrust policy ; collusion JEL codes: L24 ; L44 ; K21 ; O32

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    Bibliographic Info

    Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1030.

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    Date of creation: 2013
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    Handle: RePEc:wrk:warwec:1030

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    1. Hall, B. & Jaffe, A. & Trajtenberg, M., 2001. "The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools," Papers 2001-29, Tel Aviv.
    2. Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
    3. Lars-Hendrik Röller & Ralph Siebert & Mihkel M. Tombak, 2007. "Why Firms Form (or do not Form) RJVS," Economic Journal, Royal Economic Society, vol. 117(522), pages 1122-1144, 07.
    4. Hernán, Roberto & Marín Uribe, Pedro Luis & Siotis, Georges, 2000. "An Empirical Evaluation Of The Determinants Of Research Joint Venture Formation," CEPR Discussion Papers 2442, C.E.P.R. Discussion Papers.
    5. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
    6. Kaiser, Ulrich, 2002. "An empirical test of models explaining research expenditures and research cooperation: evidence for the German service sector," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 747-774, June.
    7. Klaus Gugler & Ralph Siebert, 2007. "Market Power versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 645-659, November.
    8. Yannis Caloghirou & Nicholas S Vonortas & Stavros Ioannides, 2002. "Science and technology policies towards research joint ventures," Science and Public Policy, Oxford University Press, vol. 29(2), pages 82-94, April.
    9. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
    10. John M. Connor, 2003. "Private International Cartels: Effectiveness, Welfare, and Anticartel Enforcement," Working Papers 03-12, Purdue University, College of Agriculture, Department of Agricultural Economics.
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