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

Mukherjee, Arijit

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. (2024). Cooperative R&D for a New Product under Convex Production Costs. Journal of Institutional and Theoretical Economics, 180(3), 401-424. https://doi.org/10.1628/jite-2024-0001

• Journal Article Type: Article
• Acceptance Date: Mar 18, 2023
• Online Publication Date: Jan 25, 2024
• Publication Date: Jan 1, 2024
• Deposit Date: Apr 3, 2023
• Publicly Available Date: Jan 2, 2025
• Journal: Journal of Institutional and Theoretical Economics
• Print ISSN: 0932-4569
• Electronic ISSN: 1614-0559
• Publisher: Mohr Siebeck
• Peer Reviewed: Peer Reviewed
• Volume: 180
• Issue: 3
• Pages: 401-424
• DOI: https://doi.org/10.1628/jite-2024-0001
• Keywords: Cooperative R&D; Non-cooperative R&D; Technology licensing; Welfare
• Public URL: https://nottingham-repository.worktribe.com/output/19208342
• Publisher URL: https://ideas.repec.org/a/mhr/jinste/urndoi10.1628-jite-2024-0001.html