One-Way Spillovers, Endogenous Innovator/Imitator Roles, and Research Joint Ventures

A two-period duopoly characterized by a one-way spillover structure in process R&D and a very broad specification of product market competition and a general analysis of the social benefits of, and firms’ incentive for, forming research joint ventures is considered.

Abstract

We consider a two-period duopoly characterized by a one-way spillover structure in process R&D and a very broad specification of product market competition. We show that a priori identical firms always engage in different levels of R&D, at equilibrium, thus giving rise to an innovator/imitator configuration and ending up with different sizes. We also provide a general analysis of the social benefits of, and firms' incentive for, forming research joint ventures. Another contribution is methodological, illustrating how submodularity (R&D decisions are strategic substitutes) can be exploited to provide a general analysis of a R&D game. Journal of Economic Literature Classification Numbers: C72, L13, O31.