Do Research Joint Ventures Serve a Collusive Function?

Abstract

Every year thousands of firms are engaged in research joint ventures (RJV), where all knowledge gained through R&D is shared among members. Most of the empirical literature assumes members are non-cooperative in the product market. But many RJV members are rivals leaving open the possibility that firms may form RJVs to facilitate product market collusion. We examine this by exploiting variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies associated with a RJV. We use data on RJVs formed between 1986 and 2001 together with firm-level information from Compustat to estimate a RJV participation equation. After correcting for the endogeneity of R&D and controlling for RJV characteristics and firm attributes, we find the decision to join is impacted by the policy change. We also find the magnitude is significant: the policy change resulted in an average drop in the probability of joining a RJV of $41\%$ among computer and semiconductor manufacturers, $34\%$ among telecommunications firms, and $33\%$ among petroleum refining firms. Our results are consistent with research joint ventures serving a collusive function.

Research Joint Ventures: The Role of Financial Constraints

“…Further, she concludes that firms are more likely to join an RJV the more they spend on R&D. Link (1998) provides case-study evidence for efficiencies in a specific RJV. Finally, Duso et al (2014) and Sovinsky (2022) find empirical evidence that RJVs among competitors are more prone to collusion, which reduces welfare. Thus, horizontal R&D cooperation should come under scrutiny by authorities.…”

“…22 Note, however the empirical work suggesting that RJVs may foster collusion (Duso, Röller, and Seldeslachts (2014) and Sovinsky (2022)).…”

Simulating Collusion: Challenging Conventional Estimation Methods

“…Harrington and Chang (2015) extend this model by introducing leniency together with capacity constraints for the CA and endogenize the intensity of non-leniency enforcement (Motta and Polo (2003) and Spagnolo (2008)). Duso et al (2014), Heim et al (2022) and Sovinsky (2022) use the introduction of leniency programs as exogenous shocks to test whether horizontal cooperation (joint ventures and controlling shareholders, respectively) declines. In contrast, Miller (2009) shows increased cartel detection after the introduction of the leniency program in 1993, but no sign for an increase in deterrence in a sample of convicted cartels.…”

Financial and regulatory assessment of Mobile Network Sharing as a trigger of cost efficient 5G rollout in CEE

“…They found that network investment related communication facilitated a collusion at retail level, but did not lead to more investment. Sovinsky and Helland [2018] provided empirical evidence that R&D joint ventures can serve a collusive function. They showed that the revision of antitrust rules in the 1990s in the US to decrease collusive agreements, was followed by a significantly reduced joining, therefore it highlights that coordination in R&D dimension may facilitate coordination in other dimensions.…”