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Strategic R&D Networks and Competition Policy Implications: case of three ex-ante different firms
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- The recent developments of increasing market competition led firms to collaborate in R&D in order to increase their profits. The literature has developed different models on firms’ strategic cooperation to decrease their marginal costs of production by sharing knowledge. The aim of this study is to address two shortcomings of the recent literature on this topic, by presenting a model of R&D networks with three ex-ante different firms and analysing the policy implications. First, I observed that the models of R&D networks generally start with ex-ante equal firms that subsequently acquire advantages on their competitors through the position they get in the network. However, empirically firms do not always start with the same marginal costs of production. Therefore, my first contribution is the development of a model that take these disparities among firms into account, adjusting the basic model of Goyal and Moraga-González (2001). Secondly, I noted that the level of collaboration reached by firms is not always optimal from the social welfare standpoint. Therefore, my second contribution consists on suggesting to the government some policy interventions aimed at increasing the welfare of the economy. After analysing the policy implications of my model, I have also briefly mentioned some aspects to consider in the intervention when the assumptions of the model are different. To do it, I have analysed some extensions of the basic model in the literature. According to the findings, it results that the stable architecture that firms create uncooperatively does not generally correspond to the efficient one. Moreover, the structure that maximises welfare usually provides very low profits for the firm with a disadvantaged position in the network. The highest value of social welfare is reached in the efficient network when firms are more similar. The possible policy interventions depend on the specific problem that the government needs to solve. If there are too many links in the equilibrium, the intervention could focus on blocking or taxing some agreements. If instead firms do not collaborate enough, the government could incentivise some agreements by subsidising the efforts or the link formation. In addition, the government could subsidise the marginal cost of production of the least efficient firms to create a more balanced environment. Here it is important to check whether the increase in welfare is higher than the cost of the subsidy.