Appropriation and Cooperation : Research Joint Ventures with Limitation of Technology Transferability

Abstract

One of most important problems of securing property rights on R&D results from the heterogeneous nature of technological knowledge. This heterogeneity is presented here through the decomposition of technology into general knowledge and practical know-how and is termed by us “Limited Technology Transferability”. In order to grasp the market structure consequences of this decomposition, we introduce R&D competition, two forms of research joint ventures (RJVs). The marginal analysis shows that market equilibria of perfect and imperfect RJVs result in a socially optimal R&D investment structure (of knowledge and know-how ) but an insufficient R&D investment level. The comparison, in terms of absolute value, exhibits that the perfect RJV dominates the imperfect RJV and R&D competition in cost reduction, output, price and profit. Imperfect RJV equilibrium entails greater per-firm profit than competitive R&D equilibrium. When goods are sufficiently differentiated, the imperfect RJV comes out with a higher cost reduction and output, and a lower price than R&D competition. However this situation is reversed when goods are sufficiently homogeneous.