Horizontal Agreements and R&D Complementarities: Merger versus RJV

Abstract

We study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and, if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger, there is a probability that an RJV contract will fail to enforce R&D sharing. We find that a horizontal agreement always arises. The insiders' merger/RJV choice involves a trade-off: While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater brand similarity and contract enforceability ("quality") both favour RJV, while greater R&D complementarity favours merger. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible.

The EU Block Exemption and Horizontal R&D Agreements

“…20. We model cooperation at the R&D stage as a joint profit maximization but other possibilities exist such a R&D merger or maximization in individual labs and knowledge sharing as in Ferrett and Poyago-Theotoky (2016). 21.…”

Endogenous Free Trade Agreements and International R&D Networks

“…It has been argued that the popularity of R&D networks can be partly attributed to the fact that they are easier to establish, administer and dissolve relative to RJVs, all of which are important factors in a rapidly changing business environment (Narula and Hagedoorn, ). In this paper, we focus our attention on R&D networks; for studies on RJVs, though in a different context, we refer readers to d'Aspremont and Jacquemin (), Kamien et al (), Poyago‐Theotoky (), Lee (), Gil‐Molto et al (), Atallah (), Falvey et al (), Manasakis et al (), Ferrett and Poyago‐Theotoky () and the references therein. Caloghirou et al () and Marinucci () review the literature on R&D cooperation.…”