Research Joint Ventures and Cartels in International Product R&D

Purpose - This paper analyzes how Research and Development (R&D) cartelization and Research Joint Ventures (RJV) affect firms that engage in Cournot competition in their product market using a model in which the Home and Foreign firm produce differentiated products and export their total output to a third country’s market. Design/Methodology - In a two-stage game, research expenditures incurred in the first stage improve product quality and are subject to various degrees of spillovers. We consider four different scenarios. Findings - In a symmetric equilibrium we observe the following: (i) an RJV that cooperates in R&D decision yields the highest R&D expenditure. However, the scenario which yields the lowest expenditure depends on the extent of differentiation between the goods and the degree of spillovers; (ii) RJV cartelization yields the highest product quality, output, and consumer surplus in the third country; however, the lowest is produced by R&D competition if spillovers are strong and by R&D cartelization if spillovers are weak; and (iii) each firm’s profit is at its minimum in R&D competition and its maximum in RJV cartelization. Furthermore, if spillovers are strong, the profit of each firm in R&D cartelization is greater than that in RJV competition, and vice versa. Originality/value - By analyzing product innovation in international markets, we can find similarities and differences between process R&D and product R&D in international markets.