Horizontal agreements and R&D complementarities: merger versus RJV

We study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger and motivated by real-world evidence, we incorporate a probability that an RJV contract will fail to enforce R&D sharing. We find that a horizontal agreement always arises in equilibrium, which is consistent with empirical findings that R&D complementarities between firms positively influence the formation of horizontal agreements. The insiders’ merger/RJV choice involves a trade-off: While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater contract enforceability (quality) and R&D investment costs both favour RJV. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible. We also explore the welfare implications of the firms’ merger/RJV choice

Flexible vs dedicated technology adoption in the presence of a public firm

We study firms' adoption of flexible versus dedicated technologies in the context of a mixed versus a private duopoly with product differentiation. The flexible technology allows a firm to become multiproduct or multimarket without bearing additional costs. We find that a configuration where both firms adopt flexible technologies is more likely to arise in equilibrium in the private duopoly. A similar result occurs when both firms use a dedicated technology in the case of either almost independent products or products that are close substitutes. Privatization of the public firm is socially beneficial only in limited circumstances

Coordination costs: a drawback for research joint ventures?

We analyze a simple oligopoly model where firms can engage in cost- reducing R&D. We compare two R&D regimes: R&D competition and R&D cooperation where firms can enter in a Research Joint Venture (RJV). We introduce coordination costs for the RJV and examine how these affect the equilibrium outcomes. Further, we examine the ques- tion of the equilibrium versus optimal size of the RJV. For a given size of the RJV, its members decrease their own R&D as the anticipated coordination costs increase. This results in lower output and profits. On the contrary, the non-RJV firms increase their R&D investments in response to the fall in the RJV firms' R&D.We show that the per- formance of the RJV in terms of R&D investment, profit and welfare in relation to R&D competition is sensitive to the level of coordination costs. Furthermore, we show that, although the RJV as a whole may no longer conduct a unit of R&D at a lower cost compared to the in- dependent firm under the non-cooperative R&D regime, its members can still make savings on their own R&D expense through information sharing. Finally, we find that not only the equilibrium size becomes smaller as coordination costs increase, but the discrepancy between the equilibrium and optimal sizes is widening. One important message from our analysis is that by ignoring the coordination costs of oper- ating the RJV, the anticipated benefits or success of the cooperative project could have been grossly exaggerated

R&D policy and privatization in a mixed oligopoly

We introduce R&D activity and R&D subsidies in the context of a mixed oligopoly and evaluate the effects of privatization on welfare. We show that when R&D subsidies are employed, privatization is welfare and R&D promoting provided that the number of competitors is sufficiently large

Public policy towards R&D in a mixed duopoly with spillovers

We investigate the use of subsidies to R&D, both in a mixed and a private duopoly market. We show that the socially optimal R&D subsidy is positive and increasing in the degree of spillovers both in the private and the mixed duopoly, although it is lower for the former than for the latter. We also nd support for the empirical claim that privatization is followed by a scaling down of the R&D activity. A comparative static analysis of welfare levels suggests that privatization is welfare detrimental, which lends some support to the views against the widespread adoption of privatization programs

A note on endogenous spillovers in a non-tournament R&D duopoly

The paper analyzes a simple non-tournament model of R&D where firms are engaged in cost-reducing innovation. It is shown that when spillovers of information are treated as endogenous firms never disclose any of their information when choosing their R&D non-cooperatively. Under cooperative R&D, firms will always choose to fully share their information, i.e., a research joint venture will operate with a maximal spillover value

The timing of environmental policy: a note on the role of product differentiation

The timing of environmental policy: a note on the role of product differentiatio

University funding systems and their impact on research and teaching: a general framework

This paper addresses the following question: how does a higher education funding system influence the trade-off that universities make between reasearch and teaching? We do so by constructing a general model that allows universities to choose actively the quality of their teaching and research when faced with different funding systems. In particular, we derive the feasible sets that face universities under such schemes and show how, as the parameters of the systems are varied, the nature of the university system itself changes. The "culture" of the university system thus becomes endogenous. This makes the model useful for the analysis of reforms in funding and also for international comparisons

Universities and fundamental research: reflections on the growth of university-industry partnerships

Universities and fundamental research: reflections on the growth of university-industry partnership

Optimal incentives for income-generation in universities: the rule of thumb for the Compton tax

In this paper we propose a novel framework to model one of the key links between universities and industry—the undertaking of applied research. We postulate that a basic objective of universities is to undertake fundamental research and that they receive public funding to do so. Nevertheless, faced with tight budget constraints, universities may have incentives to allow their staff to devote some of their time to income-generating activities such as applied research or consultancy. This opens up two channels by which universities can ease their budget constraint: (i) by allowing academics to supplement their income, universities may be able to hold down academic salaries; (ii) universities can effectively ‘tax’ the income that academics raise through applied research or consultancy—for example, through the imposition of ‘overhead charges’. By easing their budget constraint, universities may be able to take on sufficient extra staff to more than offset the time that existing staff are spending on non-fundamental research and thus increase the amount of fundamental research that they can achieve with a given public budget. We develop a model of this link between universities and firms and use it to determine the optimal ‘tax’ that universities should impose on applied-research income. The Compton tax, used at MIT in the 1930s, is an early example of the use of this instrument