Cooperative R&D with Endogenous Technology Differentiation

Abstract

We study a nontournament R&D duopoly. Before the standard R&D investment and quantity‐setting stages, we consider a stage in which firms choose their R&D technologies. Spillovers negatively depend on R&D technology differentiation. We show that, in equilibrium, firms will choose identical or very similar R&D processes. Such equilibria may entail less differentiation than would be dictated by social welfare maximization.

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