Optimal asymmetric strategies in research joint ventures

Abstract

This paper identifies an overlooked implication of models of research joint ventures initiated by d'Aspremont and Jacquemin (1988). Even though the aggregate R&D cost of identical firms in a research joint venture would be lowest if they invested equally to reduce subsequent production costs, nonetheless members may often enlarge their overall joint profit by making unequal investments. Such a strategy raises costs in the investment stage but may create more than offsetting benefits in the production stage since industry profits are larger there when the firms are of unequal size. When the consideration leading to asymmetry prevails, we find that, in contrast to previous work, a research joint venture can raise welfare even when there are no spillovers.