INTERINDUSTRY RESEARCH-AND-DEVELOPMENT SPILLOVERS - WHAT DIFFERENCE DO THEY MAKE

The analytical framework of D'Aspremont and Jacquemin (The American Economic Review, 1988, 78, 1133-1137) is extended to a two-industry, two-firm-per-industry model allowing for R&D spillovers to occur within industries as well as inter-industry R&D spillovers on the level of strategic R&D investments, output, profits and total welfare when firms compete in both the R&D and output stage. In the second part, we compare the equilibrium outcomes that result from R&D cooperation, which includes both intra- and inter-industry R&D agreements. Inter-industry R&D spillovers have a very important effect on a firm's incentives to invest in R&D both directly and indirectly, because of their influence on the likely impact of intra-industry R&D spillovers. Also, R&D agreements that cut across industries may be more socially beneficial than cooperatives whose membership comes from a single industry.