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Research and Development Cooperatives and Market Collusion: A Global Dynamic Approach

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  • Jeroen Hinloopen

    (CPB Netherlands Bureau for Economic Policy Analysis
    Amsterdam School of Economics, University of Amsterdam)

  • Grega Smrkolj

    (Newcastle University Business School)

  • Florian Wagener

    (University of Amsterdam)

Abstract

We present a continuous-time generalization of the seminal research and development model of d’Aspremont and Jacquemin (Am Econ Rev 78(5):1133–1137, 1988) to examine the trade-off between the benefits of allowing firms to cooperate in research and the corresponding increased potential for product market collusion. We show the existence of a solution to the optimal investment problem using a combination of results from viscosity theory and the theory of planar dynamical systems. In particular, we show that there is a critical level of marginal cost at which firms are indifferent between doing nothing and starting to develop the technology. We find that colluding firms develop further a wider range of initial technologies, pursue innovations more quickly, and are less likely to abandon a technology. Product market collusion could thus yield higher total surplus.

Suggested Citation

  • Jeroen Hinloopen & Grega Smrkolj & Florian Wagener, 2017. "Research and Development Cooperatives and Market Collusion: A Global Dynamic Approach," Journal of Optimization Theory and Applications, Springer, vol. 174(2), pages 567-612, August.
    • Handle: RePEc:spr:joptap:v:174:y:2017:i:2:d:10.1007_s10957-017-1133-0
    DOI: 10.1007/s10957-017-1133-0
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    3. Gezer, Serhat, 2019. "Delaying product introduction: A dynamic analysis with endogenous time horizon," Journal of Economic Dynamics and Control, Elsevier, vol. 102(C), pages 96-114.

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