Are You the Right Partner ? R&D Agreement as a Screening Device

Conti, Chiara and Marini, Marco A. (2017): Are You the Right Partner ? R&D Agreement as a Screening Device.

Abstract

This paper focusseses on the strategic use of firms' R&D agreements to overcome R&D inefficiencies in presence of asymmetric information and research spillovers. We introduce a duopoly game where initially one firm is not fully informed on its rival's R&D productivity. We show that, without R&D agreements, the usual underinvestment problem can be exacerbated by the presence of asymmetric information. However, by proposing a R&D agreement, the uninformed firm may not only gain from the internalization of R&D investment spillovers, but also use it strategically as a screening device to assess the true type of its rival. According to the model, firms are more likely to pursuit R&D agreements in presence of similar productivity and less when their productivity gap is high. This is consistent with the empirical findings highlighting the importance of firms' similarities for R&D collaborations.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asymmetric Information; Screening; Duopoly; R&D investments; R&D Spillovers; R&D agreements.
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; L - Industrial Organization > L0 - General > L00 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L19 - Other

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