LECTURE 5
Why do firms collaborate on R&D?
To remove inefficiencies: spillovers do not matter, avoid duplication, more financial resources
As a result, potentially better results can be obtained and larger or riskier projects may become feasible
Which type of R&D collaborations exist?
Strategic alliances
Joint venture
Licensing
Outsourcing
Collective research organisations
When does collaboration lead to more innovation, and when to less innovation?
When spillovers are high (beta greater than 0.6), collaboration leads to more R&D investment and viceversa in the D'Aspermont and Jacquemin model
What are the welfare implications of R&D collaboration? When are they positive?
If spillovers are high enough, industry output is larger with R&D collaboration, which makes prices lower and thus consumer surplus is larger -> greater welfare
How does absorptive capacity influence the incentives and effects of R&D collaboration?
If we substitute beta for B(xi) a function of absorptive capacity in the D'Aspermont Jacquemin model, it gives larger R&D investments for similar spillover rates, so it accelerates the results
Is it a sensible policy to allow firms to coordinate their R&D decisions?
Yes, but only in certain cases:
When spillovers are high (D'Aspermont and Jacquemin)
When firms are non-competitors (Ex: Research Joint Ventures -> if firms are competitors, collusion in the post innovation market)
What is the purpose of intellectual property rights?
Provide protection for the results of an invenstment, in order to keep the incentives to invest in research and development activities
What are the externalities of R&D with spillovers according to D'aspermont and Jacquemin model?
Affect the overall industry profits -> increases with the level of spillovers
Ignored when firms compete
Affect a firm's competitive advantage with respect to its rival -> decrease with the level of spillovers
Present when firms compete
Which are the different optimal investments in R&D in competition and cooperation according to D'Aspermont and Jacquemin?
Competition:
x*=[(2-β)(a-c)]/(4.5bg-(2-β)(1+β)]
Cooperation:
^x=[(1+β)(a-c)/(4.5bg-(1+β)^2)]
What does empirical evidence say about R&D collaboration?
- Knowledge alliances lead to more and better patents
Exchange alliances -> more patents
Creation alliances -> better patents
- Research joint ventures: R&D collaboration increases efficiency when participants are non-competitors, otherwise large networks incentivize market collusioon
How does EU competition policy view R&D collaboration?
In the EU, there is a block exception for R&D collaboration that applies if:
Firms joint market share is lower than 25%
No contractual restrictions on independent R&D
No restrictions on the use of the knowledge commonly generated
Even if the exception does not apply, the European Comission might allow the collaboration