Asymmetric firms, technology sharing and R&D investment

Abstract

We use a combination of theory and experiment to study the incentives for firms to share knowledge when they engage in research and development (R&D) in an uncertain environment. We consider both symmetric and asymmetric starting points with regards to the amount of initial knowledge firms have before conducting R&D and look at how differences in starting positions affect the willingness of firms to share knowledge. We investigate when and if firms find R&D cooperation beneficial and how investment in R&D is affected by the outcome of the sharing decisions. The experimental evidence shows that overall subjects tend to behave consistently with theoretical predictions for the sharing of knowledge, although leaders who are not compensated by a side payment from laggards are more willing to share than predicted by the theory, and leaders who are compensated are less willing. The data on investment suggests less investment with sharing than without, consistent with theory. Compared to exact numerical predictions, there is overinvestment or underinvestment except for symmetric firms under no sharing. All cases of overinvestment and underinvestment, regardless of sharing or not and regardless of starting positions, are well explained by smoothed-out best (quantal) responses.