Noncooperative versus cooperative R&D with endogenous spillover rates

This paper deals with a general version of a two-stage model of R&D and product market competition. We provide a thorough generalization of previous results on the comparative performance of noncooperative and cooperative R&D, dispensing in particular with ex-post firm symmetry and linear demand assumptions. We also characterize the structure of profit-maximizing R&D cartels where firms competing in a product market jointly decide R&D expenditure, as well as internal spillover, levels. We establish the firms would essentially always prefer extremal spillovers, and within the context of a standard specification, derive conditions for the optimality of minimal spillover.