Monday, December 6, 2010
Posted by D. Daniel Sokol
Tomaso Duso, Humboldt University of Berlin - School of Business and Economics, Wissenschaftszentrum Berlin für Sozialforschung (WZB) - Competitiveness and Industrial Change, Lars-Hendrik Röller, ESMT European School of Management and Technology, Centre for Economic Policy Research (CEPR), Wissenschaftszentrum Berlin für Sozialforschung (WZB) - Competitiveness and Industrial Change, and Jo Seldeslachts, Wissenschaftszentrum Berlin für Sozialforschung (WZB) explain Collusion Through Joint R&D: An Empirical Assessment.
ABSTRACT: This paper tests whether upstream R&D cooperation leads to downstream collusion. We consider an oligopolistic setting where firms enter in research joint ventures (RJVs) to lower production costs or coordinate on collusion in the product market. We show that a sufficient condition for identifying collusive behavior is a decline in the market share of RJV-participating firms, which is also necessary and sufficient for a decrease in consumer welfare. Using information from the US National Cooperation Research Act, we estimate a market share equation correcting for the endogeneity of RJV participation and R&D expenditures. We find robust evidence that large networks between direct competitors - created through firms being members in several RJVs at the same time - are conducive to collusive outcomes in the product market which reduce consumer welfare. By contrast, RJVs among non-competitors are efficiency enhancing.