Morton I. Kamien and Israel Zang

Competing Research Joint Ventures

Research and development (R&D) competition among firms has recently been extended to R&D competition involving research joint ventures. It was previously shown that in an industry conducting cost-reducing R&D followed by competition in the product market, if all firms both fully share R&D information and coordinate investments to maximize pint profits, final products prices are lower, and firms’ profits are higher than with information shriving alone, joint profit maximization alone, or no cooperation. In this paper we question whether a single research joint venture (RJV) cartel is the best form of industry R&D coordination. We show that there are circumstances in which splitting a single RJV cartel into several competing ones yields lower product prices. Moreover, we show that in these circumstances, splitting the industry into exactly two competing RJV cartels would be best.