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Title:
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| Number: | 07-05 |
| Author: | |
| Issue Date: | March 2007 |
| Abstract: | We examine whether cooperation in R&D leads to product
market collusion. Suppose firms compete in a stochastic R&D race
while maintaining the collusive equilibrium in a repeated-game
framework. Innovation creates a cost asymmetry and destabilizes the
collusive equilibrium. Firms forming an R&D joint venture can
maintain cost symmetries through technology sharing agreement, thereby
stabilizing collusion. The stability of post-discovery collusion makes
collusion stable in pre-discovery periods. However, formation of
R&D cooperatives may increase social welfare because firms share an
efficient technology. Interestingly, a welfare improvement is less
likely if innovation leads to a large cost reduction. |
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