Thursday, January 31, 2013

Collusion through joint R&D: An empirical assessment

Posted by D. Daniel Sokol

Tomaso Duso Duesseldorf Institute for Competition Economics, Heinrich-Heine University, Lars-Hendrik Roller, European School of Management and Technology (ESMT) and Jo Seldeslachts, University of Amsterdam and KU Leuven have an interesting paper on 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 U.S. 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.

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