Dynamic R&D with spillovers: Competition vs cooperation

We investigate dynamic R&D for process innovation in a Cournot duopoly where firms may either undertake independent ventures or form a cartel for cost-reducing R&D investments. By comparing the profit and welfare performances of the two settings in steady state, we show that private and social incentives towards R&D cooperation coincide for all admissible levels of the technological spillovers characterising innovative activity. We also evaluate the whole history of the dynamic system along the transition to the steady state, showing that the conflict between private and social incentives does not necessarily emerge. (C) 2008 Elsevier B.V. All rights reserved.