Cooperative and Non-cooperative R&D in Oligopoly with Spillovers

Abstract

This paper examines the positive and normative effects of cooperative R&D--whereby member firms commit themselves to the joint profit-maximizing level of R&D in a "precompetitive stage" but remain fierce competitors in the product market--vis-a-vis noncooperative R&D, socially first-best R&D, and socially second-best R&D. In the presence of sufficiently large R&D spillovers, neither noncooperative nor cooperative equilibria achieve even second-best R&D levels. In the absence of spillover effects, however, while the cooperative R&D level remains socially insufficient, the noncooperative level may overshoot first- and second-best levels of R&D. Copyright 1992 by American Economic Association.