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The Optimal Risk Choice of Cooperative and Noncooperative R&D With Cross‐Ownership

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  • Dongdong Li
  • Feiran Xu
  • Chenxuan Shang

Abstract

This paper develops a duopoly model to examine firms' optimal R&D risk choices under cooperative and non‐cooperative R&D with cross‐ownership. We find that firms adopt higher R&D risks in cooperative settings than in non‐cooperative ones. Moreover, equilibrium R&D risks increase with cross‐ownership, and a firm assumes higher risk when it holds a smaller equity stake in its competitor. Our results also reveal that the socially optimal R&D risk exceeds the private optimum. Under cooperative R&D, this risk gap widens as cross‐ownership rises, whereas in non‐cooperative R&D, its trend depends on product substitutability. Extending the model to unilateral ownership, we show that the firm partially owned by its competitor takes on higher R&D risk than the owning firm, though both assume lower risk compared to cross‐ownership. Finally, we demonstrate that R&D risk is higher under Bertrand competition than under Cournot competition. This study contributes to the literature by highlighting the role of ownership structure in shaping firms' risk‐taking behaviors in R&D and offering new insights into the trade‐off between cooperation and competition in innovation.

Suggested Citation

  • Dongdong Li & Feiran Xu & Chenxuan Shang, 2026. "The Optimal Risk Choice of Cooperative and Noncooperative R&D With Cross‐Ownership," American Journal of Economics and Sociology, Wiley Blackwell, vol. 85(1), pages 149-162, January.
    • Handle: RePEc:bla:ajecsc:v:85:y:2026:i:1:p:149-162
    DOI: 10.1111/ajes.70007
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    References listed on IDEAS

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