Abstract
We consider a duopoly competing in quantity, where firms can invest in both innovative and absorptive research and development to reduce their unit production cost, and where they benefit from free spillovers between them. We analyze the case where firms act non-cooperatively and the case where they cooperate by forming a research joint venture. We show that, in both modes of play, there exists a unique symmetric solution. We find that the level of investment in innovative research and development is always the highest and that the efficiency of investment in absorptive research has almost no impact on the equilibrium solution.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
We exclude zero as a lower bound because the characterization of the solutions was made under the assumption that l>0.
Actually, we compared the results obtained with values of A as high as 50 times the lowest value (similarly for D), and the conclusions remain qualitatively the same.
The exact threshold where investments are the same is around 0.5 but depends on other parameter values.
References
D’Aspremont, C., Jacquemin, A.: Cooperative and noncooperative R&D in duopoly with spillovers. Am. Econ. Rev. 78, 1133–1137 (1988)
D’Aspremont, C., Jacquemin, A.: Cooperative and noncooperative R&D in duopoly with spillovers: erratum. Am. Econ. Rev. 80, 641–642 (1990)
Suzumura, K.: Cooperative and noncooperative R&D in an oligopoly with spillovers. Am. Econ. Rev. 82, 1307–1320 (1992)
Salant, S.W., Shaffer, G.: Optimal asymmetric strategies in research joint ventures. Int. J. Ind. Organ. 16, 195–208 (1998)
Kamien, M.I., Muller, E., Zang, I.: Research joint ventures and R&D cartels. Am. Econ. Rev. 82, 1293–1306 (1992)
Amir, R., Wooders, J.: Cooperation vs. competition in R&D: the role of stability of equilibrium. J. Econ. 67, 63–73 (1998)
Cohen, W.M., Levinthal, D.A.: Innovation and learning: the two faces of R&D. Econ. J. 99, 569–596 (1989)
Poyago-Theotoky, J.: A note on endogenous spillovers in a non-tournament R&D duopoly. Rev. Ind. Organ. 15, 253–262 (1999)
Kamien, M.I., Zang, I.: Meet me halfway: research joint ventures and absorptive capacity. Int. J. Ind. Organ. 18, 995–1012 (2000)
Wiethaus, L.: Absorptive capacity and connectedness: why competing firms also adopt identical R&D approaches. Int. J. Ind. Organ. 23, 467–481 (2005)
Grünfeld, L.A.: Meet me halfway but don’t rush: absorptive capacity and strategic R&D investment revisited. Int. J. Ind. Organ. 21, 1091–1109 (2003)
Leahy, D., Neary, J.P.: Absorptive capacity, R&D spillovers, and public policy. Int. J. Ind. Organ. 25, 1089–1108 (2007)
Kaiser, U.: R&D with spillovers and endogenous absorptive capacity. J. Inst. Theor. Econ. 158, 286–303 (2002)
Milliou, C.: Endogenous protection of R&D investments. Can. J. Econ. 42, 184–205 (2009)
Frascatore, M.R.: Absorptive capacity in R&D joint ventures when basic research is costly. Top. Econ. Anal. Policy 6(1), Article 22 (2006)
Jin, J.Y., Troege, M.: R&D competition and endogenous spillovers. Manch. Sch. 74, 40–51 (2006)
Hammerschmidt, A., Pain, N., Gain, N.: An R&D model with endogenous absorptive capacity. J. Inst. Theor. Econ. 165, 418–437 (2009)
Kanniainen, V., Stenbacka, R.: Endogenous imitation and implications for technology policy. J. Inst. Theor. Econ. 156, 360–381 (2000)
Acknowledgements
Research supported by NSERC, Canada, and HEC Montréal. We wish to thank the four anonymous reviewers and Gustav Feichtinger for valuable comments on a previous draft. The usual disclaimer applies.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Ben Youssef, S., Breton, M. & Zaccour, G. Cooperating and Non-cooperating Firms in Inventive and Absorptive Research. J Optim Theory Appl 157, 229–251 (2013). https://doi.org/10.1007/s10957-012-0156-9
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10957-012-0156-9