Public policy and R&D when research joint ventures are costly

Abstract

In this paper we examine the role of policy when forming a R&D joint venture is costly. Contrary to previous studies, we document an active role for public policy, since the interests of firms are not necessarily aligned with societal interests. The nature of policy, however, depends on the joint venture cost. If it is relatively low, then policy may call for subsidizing the joint venture to encourage collaboration. If forming a joint venture is very costly, however, then there are cases where social welfare is improved if policy encourages R&D competition with no joint venture. JEL Classification: D43, L13Politique publique et R&D quand les alliances stratégiques en recherche sont coûteuses. Ce mémoire examine le rôle de la politique publique quand la mise en place d'une alliance stratégique en recherche est coûteuse. Contrairement à ce qu'ont suggéré des études antérieures, les auteurs montrent qu'il y a un rôle positif pour la politique publique, à proportion que les intérêts des entreprises ne sont pas nécessairement alignés sur les intérêts de la société. La nature de la politique dépend cependant du coût de l'alliance stratégique. Si le coût est faible, alors une politique de subvention pour encourager la collaboration peut s'imposer. Si le coût est élevé, alors il existe des cas où une politique de concurrence dans le R&D sans alliance stratégique peut mieux servir le mieux être collectif.We thank two anonymous referees for helpful comments. The usual caveat applies.

Cooperation in Product Development and Process R&D Between Competitors

“…20 In this setting, firms decide on joint and in-house process R&D investments once all product components (i.e., the end-products) are developed. 21 …”

“…21 One could also consider an alternative timing in which firms first decide how much to cooperate on product and process R&D, and then set their in-house process R&D investments. With this alternative timing, firms would be able to internalize the negative impact of competition in process R&D on the non-common components through their process R&D investments in the common components.…”

“…7 The papers that consider both types of R&D activities, notably Lin 3 Vilasuso and Frascatore (2000) consider an exogenous fixed cost of forming a Research Joint Venture, which can be attributed to its management or auditing. In Lambertini et al (2002Lambertini et al ( , 2003 when firms cooperate in product innovation they develop a single product, whereas they produce differentiated products when they do not cooperate.…”

Size of RJVs and Degree of Cooperation in Product Development

“…Finally, with very few exceptions (notably Vilasuso and Frascatore (2000), Lambertini et al (2002), andFalvey et al (2006)) the literature does not consider any economic cost of cooperation; 11 it concludes that cooperation is, at least in a weak sense, desirable for firms since they can always replicate the non-cooperative equilibrium.…”

“…11 Vilasuso and Frascatore (2000) consider an exogenous fixed cost of forming an RJV, which can be attributed to its management or auditing. In Lambertini et al (2002), when firms cooperate in product innovation they develop a single product, whereas they produce differentiated products when they do not cooperate.…”