Abstract
This paper derives a three stage Cournot duopoly game for re- search collaboration, research expenditures and product market competition. The amount of knowledge firms can absorb from other firms is made dependent on their own research eorts, e.g., firms' absorptive capacity is treated as an en- dogenous variable. It is shown that cooperating firms invest more in R&D than non-cooperating firms if spillovers are suciently large. Further, market demand and R&D productivity have a positive eect on R&D eorts both under research joint venture and under research competition. Firms' propensity to collaborate in R&D is increasing in R&D productivity. The key findings of the theoretical model are tested using German innovation survey data for the service sector. A simultaneous model for cooperation choice and innovation expenditures shows that R&D cooperation has a weakly signif- icant positive eect on innovation expenditures. The empirical results broadly
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