Market Power and Incentives to Form Research Consortia
It is well known that instability is a limit to the formation of cartels, and that some synergies are required to give cartel members an advantage over outsiders. In this paper, we explore theoretically the linkage between cost-reduction alliances (like research joint ventures) and the formation of cartels. The former have negative external impacts on outsiders, while the latter have positive external effects on outside (independent) competitors. We find that when the decisions to join both are made simultaneously the cartel can be profitable and stable for a smaller number of members than previously found for cartel formation alone by Salant et al. (1983, Quarterly Journal of Economics 98, 185–199). This result follows both for open membership and exclusive membership rules, and suggests a possible anticompetitive impact of research joint ventures. Copyright Springer 2006
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