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Cooperation royalty contract design in research and development alliances: Help vs. knowledge-sharing

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  • Yu, Xinning
  • Lan, Yanfei
  • Zhao, Ruiqing

Abstract

We study a cooperation royalty contract design problem in a three-party research and development (R&D) alliance: A marketer offers royalty contract to hire innovator A to conduct the research stage of this process and innovator B to conduct the development stage of this process. Both innovators need to exert costly effort, which is unobservable to the marketer. Innovator A may (i) not be involved in the development stage (the non-cooperation contract); (ii) directly help innovator B by exerting effort during the development stage (the help contract); or (iii) share task-related knowledge with innovator B that would lower the latter’s costs (the knowledge-sharing contract). To capture the inherent incentive alignment problems under moral hazard and evaluate the efficiency of cooperation, we compare the efficiency of the non-cooperation contract, the help contract and the knowledge-sharing contract and identify the conditions under which the marketer benefits most. We find that when the efficiency of knowledge-sharing is high, regardless of how efficient help is, the marketer prefers the knowledge-sharing contract. Interestingly, when the efficiency of help is low and the efficiency of knowledge-sharing is moderate, the marketer prefers the help contract. In addition, when the efficiencies of both types of cooperation are low, the non-cooperation contract would benefit the marketer most. Furthermore, for an R&D task with high technical risk, the best strategy for the marketer is to offer the knowledge-sharing contract.

Suggested Citation

  • Yu, Xinning & Lan, Yanfei & Zhao, Ruiqing, 2018. "Cooperation royalty contract design in research and development alliances: Help vs. knowledge-sharing," European Journal of Operational Research, Elsevier, vol. 268(2), pages 740-754.
    • Handle: RePEc:eee:ejores:v:268:y:2018:i:2:p:740-754
    DOI: 10.1016/j.ejor.2018.01.053
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    6. Yu, Xinning & Lan, Yanfei & Zhao, Ruiqing, 2021. "Strategic green technology innovation in a two-stage alliance: Vertical collaboration or co-development?," Omega, Elsevier, vol. 98(C).
    7. Spanellis, Agnessa & MacBryde, Jillian & Dӧrfler, Viktor, 2021. "A dynamic model of knowledge management in innovative technology companies: A case from the energy sector," European Journal of Operational Research, Elsevier, vol. 292(2), pages 784-797.

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