Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Wednesday, June 15, 2011

The strategic timing of R&D agreements

Posted by D. Daniel Sokol

Marco Marini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"), Maria Luisa Petit (Department of Computer and System Sciences "Antonio Ruberti", Università di Roma "La Sapienza") and Roberta Sestini (Department of Computer and System Sciences "Antonio Ruberti", Università di Roma "La Sapienza") conceptualize The strategic timing of R&D agreements.

ABSTRACT: We present a model of endogenous formation of R&D agreements among firms in which also the timing of R&D investment is made endogenous. The purpose is to bridge two usually separate streams of literature, the noncooperative formation of R&D alliances and the endogenous timing literature. Our approach allows to consider the formation of R&D agreements over time. It is shown that, when both R&D spillovers and investment costs are sufficiently low, firms may find difficult to maintain a stable R&D agreement due to the strong incentive to invest noncooperatively as leaders. In such a case, to be stable a R&D agreement requires that the joint investment occurs at the initial stage, avoiding any delay. When instead R&D spillover rates are sufficiently high, the cooperation in R&D constitutes a profitable option, although firms also possess the incentive to sequence their investment over time! . Finally, when spillovers are asymmetric and the knowledge leaks mainly from the leader to the follower, to invest as follower becomes extremely profitable, making R&D alliances hard to sustain unless firms strategically delay their joint investment in R&D.

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