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Proximity and R&D Cooperation between firms: Location, R&D and Output in an Oligopoly with Spillovers

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  • Isabel Mota

    ()

  • António Brandão

    ()

Abstract

This paper aims at explaining how proximity between firms affects cooperation in R&D. For that purpose, it is proposed a three-stage game amongst three firms where each firm decides about location, R&D and output. FirmsÂ’ decision about location determines a R&D spillover, which is inversely related to the distance between firms. R&D output is assumed to be cost reducing and exhibit diminishing returns. Cooperation is only allowed in the R&D stage. Our results allow us to conclude that there is a positive relationship between R&D output equilibrium and the distance between firms when firms act independently. When firms cooperate in R&D, R&D output for a cooperating firm increases with the degree of information sharing between them, as well as with a reduction of the distance between cooperating firms. FirmsÂ’ decision about location is also affected by R&D activities: if R&D activities run independently, the clustering of firms only occurs for a convex spillover function; if R&D activities run cooperatively, clustering is always observed if there is an increased information sharing between firms. Keywords: Location, R&D cooperation, R&D spillovers

Suggested Citation

  • Isabel Mota & António Brandão, 2004. "Proximity and R&D Cooperation between firms: Location, R&D and Output in an Oligopoly with Spillovers," ERSA conference papers ersa04p177, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa04p177
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