In this paper, we examine how the structure of an imperfectly competitive
input market affects final-good producers? incentives to form a
Research Joint Venture (RJV), in a differentiated duopoly where R&D investments
exhibit spillovers. Although a RJV is always profitable, downstream
firms? incentives for R&D cooperation are non-monotone in the
structure of the input market, with incentives being stronger under a monopolistic
input supplier, whenever spillovers are low. In contrast to the
hold-up argument, we also find that under non-cooperative R&D investments
and weak free-riding, final-good producers invest more when facing
a monopolistic input supplier, compared with investments under competing
vertical chains. Integrated innovation and competition policies are
also discussed.
05/11/2005
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