Abstract
The authors investigate the effects of knowledge spillovers, numbers of incumbents, and demand characteristics on market equilibria involving either noncooperative firms or a research joint venture. Firms engage in cost-reducing R&D before competing in outputs. Noncooperative R&D expenditure is socially suboptimal with convex demand and likely to be so under general demand functions. A research joint venture involving all firms in the industry always invests too little relative to the social optimum. It may, however, lead to better market performance than is achieved under the noncooperative regime. Copyright 1994 by Blackwell Publishing Ltd.
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