Quality-improving alliances in differentiated oligopoly

We study rival firms' incentives in quality-improving Research and Development (R&D) networks. The analysis stresses the role of free riding associated to collaboration, and three major consequences emerge: R&D efforts decrease with the number of partners, networks of alliances are over-connected as compared to the social optimum and the profit-maximizing number of alliances is possibly non-monotonic (decreasing then increasing) with respect to inverse measure of product differentiation. (c) 2005 Elsevier B.V. All rights reserved.