chapter  4
15 Pages

Research Joint Ventures

A symmetric two-stage Nash equilibrium duopoly model of cost reducing R&D is considered in which each of the firms is subject to rate-of-return regulation. Three specific cases are examined: the case in which firms compete against each other in both the research and output stages; the case in which firms form a research joint venture in the first stage but remain noncooperative in the final stage; and the case in which firms cooperate in both R&D and output. The models used here closely follow the models of cooperative and noncooperative R&D spillovers put forth by Claude D'Aspremont and Alexis Jacquemin (1988), Raymond De Bondt, Patrick Slaets, and Bruno Cassiman (1992), Kotaro Suzumura (1992), and Sang-Seung Yi (1996). Sang-Seung Yi provides a useful two-stage model of cooperative and noncooperative R&D which incorporates an arbitrary number of firms, variations in the elasticity of demand, various spillover rates, and differs from the above by focusing mainly on the social and consumer welfare implications.