Vertical R&D Spillovers, Cooperation, Market Structure, and Innovation

This paper studies vertical R&D spillovers between upstream and downstream firms. The model incorporates two vertically related industries, with horizontal spillovers within each industry and vertical spillovers between the two industries. Four types of R&D cooperation are studied: no cooperation, horizontal cooperation, vertical cooperation, and simultaneous horizontal and vertical cooperation. Vertical spillovers always increase R&D and welfare, while horizontal spillovers may increase or decrease them. The comparison of cooperative settings in terms of R&D shows that no setting uniformly dominates the others. Which type of cooperation yields more R&D depends on horizontal and vertical spillovers, and market structure. The ranking of cooperative structures hinges on the signs and magnitudes of three competitive externalities (vertical, horizontal, and diagonal) which capture the effect of the R&D of a firm on the profits of other firms. One of the basic results of the strategic investment literature is that cooperation between competitors increases (decreases) R&D when horizontal spillovers are high (low); the model shows that this result does not necessarily hold when vertical spillovers and vertical cooperation are taken into account. The paper proposes a theory of innovation and market structure, showing that the relation between innovation and competition depends on horizontal spillovers, vertical spillovers, and cooperative settings. The private incentives for R&D cooperation are addressed. It is found that buyers and sellers have divergent interests regarding the choice of cooperative settings and that spillovers increase the likelihood of the emergence of cooperation in a decentralized equilibrium. Cet article étudie les externalités de recherche verticales entre des firmes en amont et des firmes en aval. Il y a deux industries verticalement reliées, avec des externalités horizontales au sein de chaque industrie et des externalités verticales entre les deux industries. Quatre structures de coopération en R&D sont considérées: pas de coopération, coopération horizontale, coopération verticale, et coopération horizontale et verticale simultanément. Les externalités verticales augmentent la R&D et le bien-être, alors que les externalités horizontales peuvent les augmenter ou les diminuer. La comparaison des structures de coopération en terme de R&D révèle qu'aucune structure ne domine uniformément les autres. Le classement des structures de coopération dépend des externalités horizontales et verticales, et de la concurrence. Le classement dépend des signes et magnitudes de trois externalités concurrentielles (verticale, horizontale et diagonale) qui captent l'effet de la R&D d'une firme sur les profits des autres firmes. Un des résultats de base de la littérature sur l'investissement stratégique est que la coopération entre concurrents augmente (diminue) la R&D lorsque les externalités horizontales sont élevées (faibles); le modèle montre que ce résultat n'est pas toujours vérifié en présence des externalités verticales et/ou de la coopération verticale. Le papier propose une théorie reliant le degré d'innovation à la structure du marché: la relation entre la concurrence et l'innovation dépend des externalités horizontales, des externalités verticales et de la structure de coopération. Les incitations privées à la coopération en R&D sont examinées; on montre que les vendeurs et les acheteurs ont des préférences différentes quant au choix de structure de coopération et que les externalités augmentent la vraisemblance de l'émergence décentralisée de la coopération.Vertical R&D spillovers, market structure, innovation, vertical R&D cooperation, R&D policy, Externalités de recherche verticales, structure de marché, innovation, coopération verticale en R&D, politique de R&D

VERTICAL R&D SPILLOVERS, COOPERATION, MARKET STRUCTURE, AND INNOVATION

This paper studies vertical R&D spillovers between upstream and downstream firms. The model incorporates two vertically related industries, with horizontal spillovers within each industry and vertical spillovers between the two industries. Four types of R&D cooperation are studied: no cooperation, horizontal cooperation, vertical cooperation, and simultaneous horizontal and vertical cooperation. Vertical spillovers always increase R&D and welfare, while horizontal spillovers may increase or decrease them. The comparison of cooperative settings in terms of R&D shows that no setting uniformly dominates the others. Which type of cooperation yields more R&D depends on horizontal and vertical spillovers, and market structure. The ranking of cooperative structures hinges on the signs and magnitudes of three competitive externalities (vertical, horizontal, and diagonal) which capture the effect of the R&D of a firm on the profits of other firms. One of the basic results of the strategic investment literature is that cooperation between competitors increases (decreases) R&D when horizontal spillovers are high (low); the model shows that this result does not necessarily hold when vertical spillovers and vertical cooperation are taken into account. The paper proposes a theory of innovation and market structure, showing that the relation between innovation and competition depends on horizontal spillovers, vertical spillovers, and cooperative settings. The private incentives for R&D cooperation are addressed. It is found that buyers and sellers have divergent interests regarding the choice of cooperative settings and that spillovers increase the likelihood of the emergence of cooperation in a decentralized equilibrium.Vertical R&D spillovers, Market structure, Innovation, Vertical R&D cooperation, R&D policy

From learning to partnership : multinational research and development cooperation in developing countries

The authors analyze the determinants of interfirm agreements between industrial and developing countries for research and development (R&D) - that is, between firms with asymmetric endowments of knowledge. They develop a model in which a multinational has two options: a) setting up a subsidiary and competing with a local firm in a duopoly, or b) implementing an agreement and sharing monopoly profits. The two firms, if they chose the agreement, may also cooperate in R&D. The model shows that: a) the choice of cooperating in R&D is influenced by the intertemporal preferences of the developing country firm, the relative efficiency in R&D of the two firms, and the extent of knowledge spillovers; and b) the choice of cooperating R&D increases both the profitability and stability of the agreement. The empirical analysis is based on a data set of international arm's length agreements, part of which involve joint R&D. Testing the two-choice model supports some of the key theoretical results and assumptions. R&D agreements are particularly likely to emerge when firms are operating in knowledge-intensive industries, when the partners have a nonhierarchical contractual relationship, and when technological asymmetries between home and host countries exist but are not too great.Economic Theory&Research,Agricultural Knowledge&Information Systems,Scientific Research&Science Parks,Environmental Economics&Policies,Small and Medium Size Enterprises,Economic Theory&Research,Environmental Economics&Policies,Scientific Research&Science Parks,Science Education,Agricultural Knowledge&Information Systems

Computational Results on Membership in R&D Cooperation Networks: To Be or Not To Be in a Research Joint Venture

In this study, we analyze firms’ membership in R&D (Research and Development) cooperation networks. Our main research hypothesis is that the membership in cooperation networks is related to the degree of the knowledge spillover. The approach focus on both cost symmetry and cost asymmetry. For that purpose, our work is developed in two tasks: we first develop an analytical model with three stages: in the first, firms decide whether to participate in a cooperative research network; in the second they simultaneously choose the level of R&D output, and finally firms choose the level of output through Cournot competition under both cost symmetry and cost asymmetry. Then we proceed with computational simulations in order to verify our hypothesis. From our results, we were able to conclude that cooperation leads to an improvement on RJV firms’ position in the market as it allows them to produce more than others with the same production conditions. Additionally, cooperating firms have to spend fewer resources on research, which turns the network a tremendous success on the productive efficiency level.R&D, networks, spillover, simulation, RJV

Vertical R&D Sprillovers, Cooperation, Market Structure, and Innovation

This paper studies vertical R&D spillovers between upstream and downstream firms. The model incorporates two vertically related industries, with horizontal spillovers within each industry and vertical spillovers between the two industries. Four types of R&D cooperation are studied : no cooperation, horizontal cooperation, vertical cooperation, and simultaneous horizontal and vertical cooperation. Vertical spillovers always increase R&D and welfare, while horizontal spillovers may increase or decrease them. The comparison of cooperative settings in terms of R&D shows that no setting uniformly dominates the others. Which type of cooperation yields more R&D depends on horizontal and vertical spillovers, and market structure. The ranking of cooperative structures hinges on the signs and magnitudes of three competitive externalities (vertical, horizontal, and diagonal) which capture the effect of the R&D of a firm on the profits of other firms. One of the basic results of the strategic investment literature is that cooperation between competitors increases (decreases) R&D when horizontal spillovers are high (low); the model shows that this result does not necessarily hold when vertical spillovers and vertical cooperation are taken into account. The paper proposes a theory of innovation and market structure, showing that the relation between innovation and competition depends on horizontal spillovers, vertical spillovers, and cooperative settings. The private incentives for R&D cooperation are addressed. It is found that buyers and sellers have divergent interests regarding the choice of cooperative settings and that spillovers increase the likelihood of the emergence of cooperation in a decentralized equilibrium.Cet article étudie les externalités de recherche verticales entre des firmes en amont et des firmes en aval. Il y a deux industries verticalement reliées, avec des externalités horizontales au sein de chaque industrie et des externalités verticales entre les deux industries. Quatre structures de coopération en R&D sont considérées : pas de coopération, coopération horizontale, coopération verticale, et coopération horizontale et verticale simultanément. Les externalités verticales augmentent la R&D et le bien-être, alors que les externalités horizontales peuvent les augmenter ou les diminuer. La comparaison des structures de coopération en terme de R&D révèle qu’aucune structure ne domine uniformément les autres. Le classement des structures de coopération dépend des externalités horizontales et verticales, et de la concurrence. Le classement dépend des signes et magnitudes de trois externalités concurrentielles (verticale, horizontale et diagonale) qui captent l’effet de la R&D d’une firme sur les profits des autres firmes. Un des résultats de base de la littérature sur l’investissement stratégique est que la coopération entre concurrents augmente (diminue) la R&D lorsque les externalités horizontales sont élevées (faibles) ; le modèle montre que ce résultat n’est pas toujours vérifié en présence des externalités verticales et/ou de la coopération verticale. Le papier propose une théorie reliant le degré d’innovation à la structure du marché : la relation entre la concurrence et l’innovation dépend des externalités horizontales, des externalités verticales et de la structure de coopération. Les incitations privées à la coopération en R&D sont examinées; on montre que les vendeurs et les acheteurs ont des préférences différentes quant au choix de structure de coopération et que les externalités augmentent la vraisemblance de l’émergence décentralisée de la coopération

Horizontal and Vertical R&D Cooperation

This paper introduces a second, vertically related industry into the usual one-industry oligopoly framework of cooperative R&D investment between firms operating on the same product market. R&D efforts are affected by intra- and inter-industry R&D spillovers. Horizontal and vertical R&D cooperation scenarios are compared to R&D competition. It turns out that vertical R&D cooperation is usually the only stable equilibrium in the sense that no firm has an incentive to chose any other R&D scenario. Empirical implications concerning the relationship between R&D intensities and R&D spillovers are derived and empirical evi-dence is given using data of German manufacturing firms.

R&D cooperation and spillovers: some empirical evidence.

This paper provides some first empirical evidence on the relationship between R&D spillovers and R&D cooperation. The results suggest disentangling different aspects of know-how flows. Firms which rate incoming spillovers more importantly and who can limit outgoing spillovers by a more effective protection of know-how, are more likely to cooperate in R&D. Our analysis also finds that cooperating firms have higher incoming spillovers and higher protection of know-how, indicating that cooperation may serve as a vehicle to manage information flows. Our results thus suggest that on the one hand the information sharing and coordination aspects of incoming spillovers are crucial in understanding cooperation, while on the other hand, protection against outgoing spillovers is important for firms to engage in stable cooperative agreements by reducing free-rider problems. Distinguishing different types of cooperative partners reveals that while managing outgoing spillovers is less critical in alliances with non-commercial research partners than between vertically related partners, the incoming spillovers seem to be more critical in understanding the former type of R&D cooperation.Cooperation; R&D; R&D cooperation; Spillovers;

R&D cooperation and spillovers: Some empirical evidence

This paper provides some first empirical evidence on the relationship between R&D spillovers and R&D cooperation. The results suggest disentangling different aspects of know-how flows. Firms which rate incoming spillovers more importantly and who can limit outgoing spillovers by a more effective protection of know-how, are more likely to cooperate in R&D. Our analysis also finds that cooperating firms have higher incoming spillovers and higher protection of know- how, indicating that cooperation may serve as a vehicle to manage information flows. Our results thus suggest that on the one hand the information sharing and coordination aspects of incoming spillovers are crucial in understanding cooperation, while on the other hand, protection against outgoing spillovers is important for firms to engage in stable cooperative agreements by reducing free-rider problems. Distinguishing different types of cooperative partners reveals that while managing outgoing spillovers is less critical in alliances with non-commercial research partners than between vertically related partners, the incoming spillovers seem to be more critical in understanding the former type of R&D cooperation.Research and development, cooperation, spillovers

Industrial organization and the economics of business strategy.

Industrial organization (IO) has an important role to play in inspiring the competition and regulation policies of the government. At the same it can be used to clarify the economics of business strategies. The idea here is not to give a comprehensive review, but to draw attention to some striking tendencies, prospects and problems of the field of IO as a source of inspiration for competitive strategies. A first focus will be on credible market strategies and asymmetric information, with implications for internal organization, vertical foreclosure and markets with switching costs. A second point will look at detection of not so obvious possibilities, as there are lower prices with cooperation, disadvantageous mergers, positive side effects for rivals, and disadvantageous price discrimination. Finally some approaches will be discussed to problems concerning high requirements on rationality and lack of robustness. An example will be discussed of a search for robustness in strategic investment models in oligopoly settings with leaders and followers.Economics; Strategy;