Absorptive capacity and connectedness: Why competing firms also adopt identical R&D approaches

Abstract

This paper explores the endogenous determination of R&D appropriability through the firms' choice of R&D approaches. Whereas identical broad R&D approaches 'connect' firms with their R&D environment and maximize absorptive capacities, the opposite holds for idiosyncratic R&D approaches. Our model shows that competing firms choose identical R&D approaches in order to maximize knowledge flows between each other. In essence, this frees firms from the 'prisoner's dilemma' of aggressive investment in R&D. Our analysis contrasts with Kamien and Zang's (2000) [Kamien, M., Zang, I., 2000. Meet me halfway: research joint ventures and absorptive capacity. International Journal of Industrial Organization 18 995–1012] finding that competing firms chose idiosyncratic R&D approaches. We demonstrate that their model also yields a Nash equilibrium for broad identical R&D approaches.