Rabah Amir and John Wooders

Effects of One-Way Spillovers on Market Shares, Industry Price, Welfare, and R & D Cooperation

With one-way spillovers, the standard symmetric two-period R&D model leads to an asymmetric equilibrium only, with endogeneous innovator and imitator roles. We show how R&D decisions and measures of firm heterogeneity—market shares, R&D shares, and profits—depend on spillovers and on R&D costs. While a joint lab always improves on consumer welfare, it yields higher profits, cost reductions, and social welfare only under extra assumptions, beyond those required with multidirectional spillovers. Finally, the novel issue of optimal R&D cartels is addressed. We show an optimal R&D cartel may seek to minimize R&D spillovers between its members.