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Cooperative R&D for a New Product under Convex Production Costs

Mukherjee, Arijit

Authors

ARIJIT MUKHERJEE Arijit.Mukherjee@nottingham.ac.uk
Professor of Industrial Economics



Abstract

The role of knowledge spillover for cooperative research and development (R&D), where firms commit before R&D about sharing R&D outcomes and choosing joint profit maximising R&D investments, is well known. In a duopoly model of product innovation with a stochastic non-tournament R&D process, we show that the firms may prefer cooperative R&D compared to non-cooperative R&D in the presence of convex production costs, even if there is no knowledge spillover. Thus, we provide a new reason for cooperative R&D. Consumer surplus and the expected welfare can be higher under cooperative R&D compared to non-cooperative R&D. We further show that the convex production costs create the incentive for technology licensing ex-post R&D. In the presence of licensing ex-post R&D, the firms prefer joint profit maximising R&D investments with the option for licensing ex-post R&D, while the consumers and the society may prefer cooperative R&D. Hence, a proper distribution scheme, such as a tax/subsidy policy, might be required to encourage firms to undertake cooperative R&D. Our analysis may provide some implications for vaccine research.

Citation

Mukherjee, A. (in press). Cooperative R&D for a New Product under Convex Production Costs. Journal of Institutional and Theoretical Economics,

Journal Article Type Article
Acceptance Date Mar 18, 2023
Deposit Date Apr 3, 2023
Journal Journal of Institutional and Theoretical Economics
Print ISSN 0932-4569
Electronic ISSN 1614-0559
Peer Reviewed Peer Reviewed
Keywords Cooperative R&D; Non-cooperative R&D; Technology licensing; Welfare
Public URL https://nottingham-repository.worktribe.com/output/19208342