Location and research activities organization: Could public/private cooperation be harmful?

This paper investigates the organization and the distribution of research activities between nearby public and private laboratories. In a three-stage game, the 'size', 'location' and 'research effort' are determined under the assumption that public spillovers depend on the location of the private laboratory. We compare two scenarios in which the research efforts are decided either cooperatively or non-cooperatively. We show that for particular levels of subsidy granted to the public lab, higher funding favors spatial proximity and increases the total research effort in the cooperative case, while it diminishes the total effort in the non-cooperative one. Moreover, compared with the non-cooperative case, research cooperation i) may increase the distance between the two laboratories, ii) makes the public laboratory smaller, iii) increases the total research effort, but iv) is detrimental to the payoff of the whole research sector.