IDEAS home Printed from https://ideas.repec.org/p/lbo/lbowps/2006_3.html
   My bibliography  Save this paper

Coordination Costs: A Drawback for Research Joint Ventures?

Author

Listed:

Abstract

We analyze a simple oligopoly model where firms can engage in cost-reducing R&D. We compare two R&D regimes, that is, R&D competition and R&D cooperation where firms can enter in a Research Joint Venture (RJV). We introduce coordination costs for the RJV and examine how these affect the equilibrium outcomes. Further, we examine the question of the equilibrium versus the optimal size of the RJV. For a given size of the RJV, its members decrease their own R&D as the anticipated coordination costs increase. This results in lower output and profits. On the contrary, the non-RJV firms increase their R&D investment in response to the fall in the RJV firms' R&D. We show that the performance of the RJV in terms of R&D investment, profit and welfare in relation to R&D competition is sensitive to the level of coordination costs. Furthermore, we show that, although the RJV as a whole may no longer conduct a unit of R&D at a lower cost compared to the independent firm under the non-cooperative R&D regime, its members can still make savings on their own R&D expense through information sharing. Finally, we find that not only the equilibrium size becomes smaller as coordination costs increase, but the discrepancy between the equilibrium and optimal sizes is widening. One important message from our analysis is that by ignoring the coordination costs of operating the RJV, the anticipated benefits or success of the cooperative project could have been grossly exaggerated.

Suggested Citation

  • Rod Falvey & Joanna Poyago-Theotoky & Khemarat Teerasuwannajak, 2006. "Coordination Costs: A Drawback for Research Joint Ventures?," Discussion Paper Series 2006_3, Department of Economics, Loughborough University, revised Feb 2006.
  • Handle: RePEc:lbo:lbowps:2006_3
    as

    Download full text from publisher

    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/coordcostRJV.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Beath, John & Poyago-Theotoky, Joanna & Ulph, David, 1998. "Organization Design and Information-Sharing in a Research Joint Venture with Spillovers," Bulletin of Economic Research, Wiley Blackwell, vol. 50(1), pages 47-59, January.
    2. Poyago-Theotoky, Joanna, 1995. "Equilibrium and Optimal Size of a Research Joint Venture in an Oligopoly with Spillovers," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 209-226, June.
    3. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-1320, December.
    4. Kogut, Bruce, 1989. "The Stability of Joint Ventures: Reciprocity and Competitive Rivalry," Journal of Industrial Economics, Wiley Blackwell, vol. 38(2), pages 183-198, December.
    5. Jon Vilasuso & Mark R. Frascatore, 2000. "Public policy and R&D when research joint ventures are costly," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 818-839, August.
    6. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-1306, December.
    7. Joanna Poyago-Theotoky, 1999. "A Note on Endogenous Spillovers in a Non-Tournament R & D Duopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(3), pages 253-262, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bourreau, Marc & Dogan, Pinar & Manant, Matthieu, 2010. "Size of RJVs and Degree of Cooperation in Product Development," Working Paper Series rwp10-047, Harvard University, John F. Kennedy School of Government.
    2. Simona Fabrizi & Steffen Lippert, 2012. "Due Diligence, Research Joint Ventures, and Incentives to Innovate," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(4), pages 588-611, December.

    More about this item

    Keywords

    research joint venture; coordination costs; equilibrium size; optimal size;

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lbo:lbowps:2006_3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Huw Edwards). General contact details of provider: http://edirc.repec.org/data/delbouk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.