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R&D Competition and Cooperation with Distance-Dependent Spillovers

Author

Listed:
  • Grega Smrkolj

    (Newcastle University)

  • Florian Wagener

    (University of Amsterdam)

Abstract

We study a continuous-time duopoly model of process innovation with R&D spillovers, comparing noncooperative R&D with cooperative research regimes. We extend the standard constant-spillover framework by allowing knowledge transmission to decay with technological distance and to favor followers over leaders in asymmetric specifications. In a global Markov-perfect model, firms may invest before production is viable, enter or exit production as costs evolve, and converge to no-market, monopoly, or duopoly outcomes. State-dependent spillovers change R&D incentives, catch-up dynamics, long-run market structure, and the welfare effects of research cooperation. In the computed equilibria, more follower-favoring spillovers weaken the leader's private incentive to invest but accelerate catch-up, shorten monopoly phases, and make eventual duopoly more likely. When spillovers are weak, cooperation mainly softens dynamic rivalry; when information sharing is substantial, cooperation expands market formation, lowers long-run costs, and can raise both consumer and total surplus, especially under the research-joint-venture regime. The value of R&D cooperation depends on the direction and persistence of knowledge flows, not only on their average intensity.

Suggested Citation

  • Grega Smrkolj & Florian Wagener, 2026. "R&D Competition and Cooperation with Distance-Dependent Spillovers," Tinbergen Institute Discussion Papers 26-041/II, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20260041
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    References listed on IDEAS

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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