Collusion Through Joint R&D: An Empirical Assessment
KU Leuven - Faculty of Business and Economics Research Paper No. OR1229
58 Pages Posted: 15 Jan 2013
Date Written: 2012
This paper tests whether upstream R&D cooperation leads to downstream collusion. We consider an oligopolistic setting where firms enter in research joint ventures (RJVs) to lower production costs or coordinate on collusion in the product market.
We show that a sufficient condition for identifying collusive behavior is a decline in the market share of RJV-participating firms, which is also necessary and sufficient for a decrease in consumer welfare. Using information from the U.S. National Cooperation Research Act, we estimate a market share equation correcting for the endogeneity of RJV participation and R&D expenditures.
We find robust evidence that large networks between direct competitors – created through firms being members in several RJVs at the same time – are conducive to collusive outcomes in the product market which reduce consumer welfare. By contrast, RJVs among non-competitors are efficiency enhancing.
Keywords: Research Joint Ventures, Innovation, Collusion, NCRA
JEL Classification: K21, L24, L44, D22, O32
Suggested Citation: Suggested Citation