Endogenous Asymmetry and Cooperative R&D in Linear Duopoly with Spillovers

In a standard model of R&D followed by linear Cournot competition, firm asymmetry is sustainable as equilibrium with noncooperative R&D if and only if the productivity of research is sufficiently large relative to the benefits of imitation. Increasing spillovers distribute R&D results among asymmetric competitors, causing price, firm asymmetry, and joint profit to reduce. With zero spillovers, a symmetric joint lab dominates asymmetric R&D competition in terms of social welfareand consumer surplus, but is sometimes dominated in terms of joint profit. Rising spillovers encourage symmetric collusion but make the latter potentially harmful to consumers.