Organization Design and Information‐Sharing in a Research Joint Venture with Spillovers

Abstract

The paper presents a non-tournament model of process innovation with spillovers in the R&D process when firms engage in Cournot competition in the product market. It is shown that careful modelling of information-sharing and coordination of research activities leads to the conclusion that a Research Joint Venture (RJV) will economize on scarce R&D resources. There is an analysis of the effects of R&D cooperation, in the form of an RJV, on the organization of R&D, i.e. the efficient number of research labs. R&D expenditure, which precedes production, results in lower unit costs. R&D is modelled as a two-stage process: in the first stage, firms incur expenditure that will generate new knowledge, while in the second stage this knowledge is employed to reduce unit costs. A distinction is made between single and complementary research paths. It is shown that the RJV will operate one lab in the case of a single research path exploiting its coordination advantage. In the case of complementary research paths the number of labs the RJV will operate crucially depends on the stage of the R&D process at which diminishing returns occur: it will operate both labs when diminishing returns occur at the first stage (creation of knowledge), while it will be indifferent as to the number of labs, one or two, when diminishing returns occur in the second stage (cost reduction).

Empirical Evidence on the Success of R&D Cooperation—Happy Together?

“…The review of arguments for R&D partnerships by Hagedoorn et al (2000) concludes that the expected results of research partnerships usually meet the initial incentives for forming the partnership. Furthermore, that co-operation can indeed lead to a reduction of costs of innovation activities has been shown by Beath et al (1998). One of the results of their theoretical model is that "a Research Joint Venture (RJV) will economize on scarce R&D resources" (Beath et al, 1998: 47).…”

Are you the right partner? R&D agreement as a screening device

“…Usually, the solution to the maximization problem turns out to be symmetric (as in R&D competition), that is, the two Örms choose the same strategy. 7 Although in these models the RJV formation process is not explicitly modelled, it can be easily seen that Örms possess the same incentives towards cooperation, which is always proÖtable from the Örmsí point of view for high spillovers. In this paper, we depart from the ìjoint proÖt maximization hypothesisî when deÖning the RDA regime.…”

“…Indeed, Poyago-Theotoky (1999) shows that, when Örms maximize their own proÖt and are able to decide on the value of the spillover parameter as a measure of information disclosure, they set it at the minimum level, meaning that additional leakages of knowledge are not proÖtable to them. 11 While R&D expenditure is 7 In a model with symmetric Örms, Salant and Sha §er (1998), identify a region of exogenous parameters for which asymmetric investment decisions lead to the largest joint proÖt. However, this region exists only for low spillovers, a case not analyzed in our paper (see Section 3).…”

“…9 As in Poyago-Theotoky (1999) and Amir et al (2003). 10 In the works of Beath et al (1998), Atallah (2005a), Kamien et al (1992), Baerenss (1999), Petit and Towlinski (1999) and Lambertini and Rossini (2009), in a RJV regime, the spillover parameter takes a value of one since, in addition to the coordination of R&D e §orts, Örms fully share their information. 11 When endogenously determined by the Örms, the spillover parameter takes its maximal value if Örms maximize their joint proÖt, under the assumption of symmetric R&D e §orts.…”

The design of voluntary agreements in oligopolistic markets

“…In order to capture these different effects, we borrow from a kind functional form specifications which can often be found in RJV or R&D coalition literature (e.g. Katz, 1986;d'Aspremont and Jacquemin, 1988;Kamien et al, 1992;Suzumura, 1992;Beath, Poyago-Theotoky and Ulph, 1998) and we assume that the adoption of a VA affects both production and abatement costs (the latter in an indirect way, as will appear from equilibrium conditions).…”