INTERFIRM COOPERATION WITH IMPERFECTLY APPROPRIABLE RESEARCH

Inter-firm collaboration in pre-competitive research is not always beneficial. Rather, its effectiveness in raising social benefits relative to a non-cooperative setup depends on both the nature of the agreement and the technological and market conditions of the industry in question. Joint ventures that simply allow members to coordinate their actions in pre-competitive research can restore firm incentives for both pre-competitive research and development in the presence of high knowledge spillovers and poor opportunities for innovation. Joint ventures which additionally improve the dissemination of information among member firms raise social benefits whenever the opportunities for innovation are not exceptionally good, even in the presence of relatively insignificant spillovers.