We consider a simple oligopoly model where firms engage in cost-reducing R&D and compare two R&D regimes: R&D competition and R&D cooperation in the form of a research joint venture (RJV). We introduce coordination costs for the RJV and examine how these affect the equilibrium outcomes.
We find that the performance of the RJV in comparison to R&D competition is sensitive to the level of coordination costs. Although the RJV may no longer conduct a unit of R&D at a lower cost compared to an independent firm in the non-cooperative R&D regime, RJV members can still make savings on their own R&D outlay through information sharing. We establish that there can be profitable but welfare-reducing RJVs and that R&D competition can generate a better outcome depending on the extent of coordination costs.
- Research joint venture (RJV),
- Process innovation,
- Coordination costs
Available at: http://works.bepress.com/joanna_poyago_theotoky/32/