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Absorptive capacity, R&D spillovers, and public policy

  • Leahy, Dermot
  • Neary, J. Peter

Empirical evidence strongly suggests that R&D increases a firm’s "absorptive capacity" (its ability to absorb spillovers from other firms) as well as contributing directly to profitability. We explore the theoretical implications of this. We specify a general model of the absorptive capacity process and show that costly absorption both raises the effectiveness of own R&D and lowers the effective spillover coefficient. This weakens the case for encouraging research joint ventures, even if there is complete information sharing between its members. It also implies an additional strategic pay-off to policies that raise the level of extra-industry knowledge.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 25 (2007)
Issue (Month): 5 (October)
Pages: 1089-1108

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Handle: RePEc:eee:indorg:v:25:y:2007:i:5:p:1089-1108
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  16. Katsoulacos, Yannis & Ulph, David, 1998. "Endogenous Spillovers and the Performance of Research Joint Ventures," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 333-57, September.
  17. Cockburn, Iain M & Henderson, Rebecca M, 1998. "Absorptive Capacity, Coauthoring Behavior, and the Organization of Research in Drug Discovery," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 157-82, June.
  18. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
  19. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-20, December.
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