Chapter 8 Equilibrium Research Joint Ventures

This dissertation consists of three essays investigating welfare implications of RDThe first essay examines the policy implications of a research joint venture (RJV) while introducing endogenous spillovers and costly RJV. The research joint venture is costly in the sense that the firms incur two kinds of costs when they join in an RJV: RJV formation costs and spillover costs. RJV formation costs are modeled as fixed while spillover costs increase with the amounts of information sharing within an RJV. We derive the condition under which firms do not have an incentive to form an RJV, and identify when firms within an RJV share information completely. This essay also finds that private interests with an RJV are not consistent with public interests for a wide range of RJV formation costs, which suggests the potential need for active government intervention with respect to RJV formation.;The second essay investigates the welfare effects of intellectual property rights (IPR) protection in terms of north-south trade. It asks which southern countries, if any, should provide more IPR protection, assuming that the differentiated IPR protection among southern countries can be made through a WTO (World Trade Organization) agreement. Only the northern country innovates, and n-1 southern countries have different capacities to absorb knowledge from the northern innovations. The outcome of innovations reduces the unit production cost of the northern firm, and also provides benefits to the southern firms through spillovers. This essay shows that the southern countries can be classified into three groups in terms of the welfare effects of spillovers. The countries in the first group are better off from relaxed IPR protection both in their own countries and in the other countries. The countries in the second group are better off from spillovers in their country, but worse off from spillovers in the other group. The third group suffers from welfare loss whenever IPR protection is relaxed in any southern country. The northern country is worse off by relaxed IPR protection in any southern country for wide ranges of RDThe last essay combines the analysis of the R&D cooperation with the strategic trade policy theory. Endogenizing spillovers (information sharing) within an RJV, it identifies when the RJV works as a tool of strategic trade policy, and provides its welfare implications. Many results obtained in the third market structure become reversed in the integrated market structure. In the situation where only the home country allows an RJV formation while the foreign country does not, allowing an RJV benefits the home country in the third market structure, but it hurts the home country in the case of integrated market structure if spillover costs are sufficiently high. We also identify the Nash equilibria of the policy game in which both the home and the foreign countries simultaneously decide whether to allow an RJV or not, and investigate the welfare implications when both the home and the foreign countries allow an RJV formation in each country. (Abstract shortened by UMI.)

In this article, we examine why it is difficult to induce firms to form Research Joint Ventures (RJVs). We examine various incentives and disincentives for RJV formation by estimating an endogeneous switching model using data from the US National Cooperative Research Act. The empirical findings support hypotheses that firms of different sizes have disincentives to form RJVs and that cost-sharing is an important incentive for RJV participation. In the early 1980s, a shift in technology policy took place in both the US and Europe. This was seemingly motivated by increased international competition, particularly from Japan, in high-technology sectors. Many scholars, policy makers and industrialists identified Japan's more cooperative business environment as a competitive advantage (Jorde and Teece, 1990). Japan's 1961 Act on the Mining and Manufacturing Industry Technology Research Association and the proactive efforts of MITI that encouraged joint ventures were identified as policy tools by which the Japanese created such a cooperative atmosphere. The response by US policy makers was to enact the 1984 National Cooperative Research Act (NCRA) and to provide government support for ventures such as SEMATECH.' In Europe, a block exemption for Research Joint Ventures (RJVs) was provided under EU Competition Law. Furthermore, billions of euros have been spent in framework programmes in the EU, which subsidises R&D undertakings only when different organisations work in collaboration with one another. Despite these policy changes, the number of RJVs registered under the NCRA has been quite small, ranging from 17 in 1986 to 67 in 1993 and averaging about 40 RJVs per year from 1985 to 1994. Thus the question: why is it so difficult to induce firms to form an RJV? The goal of this article is to determine empirically what the incentives are for firms to participate or not participate together in RJVs. Our study is based on US data available through the NCRA. In order to obtain consistent evaluations of the hypotheses, we address two important empirical issues. Since much of the literature suggests a link between RJVs and R&D expenditures (see below), we must control for changes in R&D expenditures and its effect on RJV formation. As we can observe R&D changes at the time of RJV formation for only those firms that form an RJV, we have a missing data problem. To deal with this first issue, we need a consistent estimate of the expected effect on R&D expenses when RJVs are not formed. A second issue is one of simultaneity between the change in R&D expenditure and the decision to form an RJV. The decision to form an RJV may be determined by its impact on R&D expenses. R&D investments, however, are in turn also determined by RJV participation, which implies

The research reported in this manuscript empirically compares the private warehouse investment strategies of small and large manufacturing firms. Mail surveys were administered to independent samples of small and large United States manufacturing firms. This research is based on a series of identically worded questions administered to both samples. Data was factor analyzed and cluster analyzed to identify three private warehouse investment strategies for small and large firms and two strategies for large firms. Analyses of three independent variables further evaluated differences in private warehouse investment strategies. Finally, the warehouse mix of small and of large firms was compared. This study identified specific private warehouse investment strategies, and warehouse mixes, in small and large United States manufacturing firms. Small firms were found to be less likely to use formal capital budgeting techniques and were less likely to consider strategic issues than large firms. Small firms were also found to be more likely to use private warehousing than large firms. This research increases the awareness of differences in logistics practice between small and large manufacturing firms and suggests that generalizations regarding logistics strategy should be approached with caution.

In a domestic market, a duopoly produces a homogeneous final good, pollution, pollution abatement, and R&D, which reduces abatement cost. One of the firms (foreign) has superior technology. The government regulates the duopoly by levying a pollution tax to maximize domestic welfare. We consider the potential implementation of three innovation agreements: cooperative research joint venture (RJV), non-cooperative RJV, and licensing. In the cooperative (non-cooperative) RJV, the firms (do not) internalize R&D spillovers. We show that, for the domestic firm, the cooperative RJV dominates, and licensing is the least desirable alternative. Although licensing is dominant for the foreign firm, it is not implementable. Both RJVs are implementable. Implementation of both types of RJVs improves the competitiveness of the domestic firm and welfare. This study yields an important policy prescription: a subsidy policy that induces the foreign firm to accept a feasible cooperative RJV when it strictly prefers a feasible non-cooperative RJV is always welfare improving.

Every year thousands of firms are engaged in research joint ventures (RJV), where all knowledge gained through research and development (R&D) is shared among members. Most of the empirical literature assumes members are non-cooperative in the product market. But many RJV members are rivals leaving open the possibility that firms may form RJVs to facilitate product market collusion. We examine this by exploiting variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies associated with a RJV. We use data on RJVs formed between 1986 and 2001 together with firm-level information from Compustat to estimate a RJV participation equation. After correcting for the endogeneity of R&D and controlling for RJV characteristics and firm attributes, we find the decision to join is impacted by the policy change. We also find the magnitude is significant: the policy change resulted in an average drop in the probability of joining a RJV of $41\%$ among computer and semiconductor manufacturers, $34\%$ among telecommunications firms, and $33\%$ among petroleum refining firms. Our results are consistent with research joint ventures serving a collusive function.

This paper combines the analysis of the R&D cooperation with the strategic trade policy theory. By introducing endogenous formation of research joint venture, we investigate when the research joint venture works as a tool of strategic trade policy, and provide its welfare implications. If R&D cooperation by forming a research joint venture is made only in the home country and not in the foreign country, the home country benefits but foreign country hurts in terms of national welfare. This is a robust result in the sense that it hoThis paper combines the analysis of the R&D cooperation with the strategic trade policy theory. By introducing endogenous formation of research joint venture, we investigate when the research joint venture works as a tool of strategic trade policy, and provide its welfare implications. If R&D cooperation by forming a research joint venture is made only in the home country and not in the foreign country, the home country benefits but foreign country hurts in terms of national welfare. This is a robust result in the sense that it holds regardless of market structure. We also find that given a research joint venture is formed in each country (i.e., two research joint ventures in the world), both the home and the foreign countries may hurt depending on market structure, which implies a ‘prisoner’s dilemma’ result.

Every year thousands of firms are engaged in research joint ventures (RJV), where all knowl-edge gained through R&D is shared among members. Most of the empirical literature assumes members are non-cooperative in the product market. But many RJV members are rivals leaving open the possibility that firms may form RJVs to facilitate collusion. We exploit variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies associated with an RJV. We estimate an RJV participation equation and find the decision to join is impacted by the policy change. Our results are consistent with research joint ventures serving a collusive function.

In a domestic market, a duopoly produces a homogeneous final good, pollution, pollution abatement and R&D. One of the firms (foreign) has superior technology. The government regulates the duopoly by levying a pollution tax to maximize domestic welfare. We consider the potential implementation of three innovation agreements: cooperative research joint venture (RJV), non-cooperative RJV and licensing. In the cooperative (non-cooperative) RJV, the firms (do not) internalize R&D spillovers. We show that, for the domestic firm, the cooperative RJV dominates and licensing is the least desirable alternative. Although licensing is dominant for the foreign firm, it is not implementable. Both RJVs are implementable. While the non-cooperative RJV is more likely the greater the degrees of asymmetry (in terms of efficiency and R&D spillover rates) between the firms, the cooperative RJV is more likely the lower the degrees of asymmetry. Implementation of both types of RJVs improve the competitiveness of the domestic firm and welfare. A subsidy policy that induces the foreign firm to accept a feasible cooperative RJV when it strictly prefers a feasible non-cooperative RJV is always welfare improving.

In a domestic market, a duopoly produces a homogeneous final good, pollution, pollution abatement and R&D. One of the firms (foreign) has superior technology. The government regulates the duopoly by levying a pollution tax to maximize domestic welfare. We consider the potential implementation of three innovation agreements: cooperative research joint venture (RJV), non-cooperative RJV and licensing. In the cooperative (non-cooperative) RJV, the firms (do not) internalize R&D spillovers. We show that, for the domestic firm, the cooperative RJV dominates and licensing is the least desirable alternative. Although licensing is dominant for the foreign firm, it is not implementable. Both RJVs are implementable. While the non-cooperative RJV is more likely the greater the degrees of asymmetry (in terms of efficiency and R&D spillover rates) between the firms, the cooperative RJV is more likely the lower the degrees of asymmetry. Implementation of both types of RJVs improve the competitiveness of the domestic firm and welfare. A subsidy policy that induces the foreign firm to accept a feasible cooperative RJV when it strictly prefers a feasible non-cooperative RJV is always welfare improving.

Research Joint Ventures (RJVs) is an effective way for SMEs(small and medium enterprises) independent innovation. In order to realize cooperation across the organization and border-crossing, SMEs RJVs must consider how to reduce cost, improve cooperative effect cooperation, and meanwhile guarantee the flexibility of SMEs. The essence of SMEs RJVs is cooperation, and cooperation is closely linked with trust. Trust is the basis for the cooperation. In order to maintain the stable cooperation relationship and good operation, SMEs RJVs require establishing incentive mechanism for the members’ cooperation. The reputation of organizational members’ cooperation is undoubtedly an effective incentive. By using the KMPW reputation model of complete information dynamic game, we can analyze the trust problems of SMEs RJVs under the condition with information asymmetry. Moreover, the KMPW reputation model can also disclose and transmit the trust information about the enterprises effectively. Key words: SMEs; Research Joint Ventures; Reputation model

Purpose - This paper develops a tractable model of general equilibrium featuring a (1) mixture of large and small firms in a sector, (2) managerial activities of large firms, and (3) leadership of large firms over small firms in product and labor markets. This paper aims to incorporate strategic firm behavior into a general equilibrium.
 Design/Methodology/Approach - This paper launches a game-theoretic approach for a mixture of large and small firms within an industry. Within the framework, small firms form a coalition to stand against large firms. Thus, it models that large firms and the coalition of small firms interact strategically. Unlike small firms, large firms hire managers to supervise production workers and improve production efficiency.
 Findings - With manager skills, the leadership of large firms is enhanced. That is, the market share of large firms expands, while that of small firms shrinks. With the shrinkage, firm selection occurs within the coalition of small firms. Thus, small firms of low-ability entrepreneurs exit the sector, and the resources are reallocated toward higher skills and higher-ability entrepreneurs. Large firms affect the pattern of labor demand by creating higher-paying jobs for skills.
 Research Implications - As large firms have stronger market leadership, aggregate income increases and wage inequality widens. This paper can contribute to the literature of oligopolistic competition and general equilibrium.

This study investigates the impacts of common ownership in a mixed triopoly market and examines the role of private–public partnerships in the research and development (R&D) formations characterized by research joint ventures (RJVs). We compare different RJVs competition among private firms (pure partial RJV) or between private and public firms (mixed partial or full RJV). We find that common ownership decreases (increases) welfare under R&D competition or mixed partial RJV (under pure partial RJV or full RJV, respectively). We also find that in an endogenous agreement on RJV formation, full RJV can be agreed upon, which is socially desirable, whereas mixed partial RJV could be when the degree of common ownership is low. Our findings suggest that the government should promote private–public partnerships in R&D investments with higher common ownership.

We examine relations between strategic environmental policy, international R&D cartels and research joint ventures (RJVs), using a third-country model with Cournot duopoly. We indicate that forming an R&D/RJV cartel reduces governments' incentives to extract rent from consumers in the third country. Contrary to conventional wisdom, we find that social welfare under R&D cartels with full information sharing, i.e., RJV cartels, cannot surpass that under R&D/RJV competition, whereas forming an R&D/RJV cartel works well for environmental investment. Among the policy implications, we show that governments can maximize global welfare by collectively determining whether to allow R&D/RJV cartels.

The paper proposes a new type of R&D cooperation between firms endowed with asymmetric spillovers, which we call symmetric Research Joint Venture (RJV) cartelization, based on reciprocity in information exchange. In this setting, firms coordinate their R&D expenditures and also share information, but such that the asymmetric spillover rates are increased through cooperation by equal amounts. It is found that this type of cooperation reduces R&D investment by the low spillover firm when its spillover is sufficiently low and the spillover of its competitor is sufficiently high. But it always increases the R&D of the high spillover firm, as well as total R&D (and hence effective cost reduction and welfare). A firm prefers no cooperation to symmetric RJV cartelization if its spillover rate is very high and the spillover rate of its competitor is intermediate. The profitability of symmetric RJV cartelization relative to other modes of cooperation is analyzed. It is found that symmetric RJV cartelization constitutes an equilibrium for a very wide range of spillovers, namely, when asymmetries between spillovers are not too large. As these asymmetries increase, the equilibrium goes from symmetric RJV cartelization, to RJV cartelization, to R&D competition, to R&D cartelization.

A simple portfolio model is used to investigate the effects of personal taxes on real investment incentives in a small open economy with large and small firms. When shares in large firms can be traded internationally and their rate of return is exogenously determined on international equity markets, a tax on the return on riskless bonds will induce a portfolio shift from bonds to shares in large firms. This shift reduces the impact of the bond tax on the required rate of return on shares in domestically owned small firms, provided that returns on shares in small and large firms are positively correlated. The total impact of the bond tax may even change from a negative to a counter-intuitive positive one if the “beta” between the returns on small and large firms is above unity. A personal tax on equity returns does in general have an ambiguous impact on the pre-tax rate of return requirement of domestically owned firms. An exogenous rate of return on large company shares is shown to enhance the possibility for the equity tax to reduce the required pre-tax rate of return in small domestic firms. A sufficient condition for a negative relationship is again that the “beta” between the returns in small and large firms is above unity.