Are you the right partner? R&D agreement as a screening device

Abstract

This paper focusseses on the strategic use of Örmsí R&D agreements to overcome R&D ine¢ciencies in presence of asymmetric information and research spillovers. We introduce a duopoly game where initially one Örm is not fully informed on its rivalís R&D productivity. We show that, without R&D agreements, the usual underinvestment problem can be exacerbated by the presence of asymmetric information. However, by proposing a R&D agreement, the uninformed Örm may not only gain from the internalization of R&D investment spillovers, but also use it strategically as a screening device to assess the true type of its rival. According to the model, Örms are more likely to pursuit R&D agreements in presence of similar productivity and less when their productivity gap is high. This is consistent with the empirical Öndings highlighting the importance of Örmsí similarities for R&D collaborations.

Greed and Fear in Downstream R&D Games

“…The fi rms have thus to assess the benefi ts from the process R&D investments (the degrees of reduction of the marginal cost of production) and the costs of such investments. Strategic interplay between fi rms' R&D decisions concerning innovation benefi ts and costs lies at the heart of the growing literature on the R&D investment games (Lambertini and Rossini, 1998;Amir et al, 2011a;Amir et al, 2011b;Burr et al, 2013;Sengupta, 2016;Conti and Marini, 2019).…”

“…We contribute to the growing body of literature on R&D investment games (see, Conti and Marini, 2019, for the latest review). Some authors have already identifi ed social dilemmas in the R&D strategic interactions between fi rms.…”

Risk Dominance Analysis of R&D Investment Cooperation in Dynamic Option Game

“…Xu et al [19] studied opportunistic behaviors in vertical R&D using game theory, and proved the inherent instability of vertical R&D, since downstream firms are more likely to break the agreement. Conti and Marini [20] found that information asymmetry may exacerbate underinvestment without R&D agreements. Ramsza et al [21] concluded that the medium level of entry cost would make firms investing in R&D betray each other.…”

Process R&D investment and social dilemmas

“…R&D coopetition (cooperation in R&D between market rivals) is used in various industries, cf., e.g., Bouncken and Fredrich (2016), Cygler et al (2018), Jakobsen (2020), to achieve technological synergies and cost reductions, among other benefits (see, e.g., Ritala and Sainio (2014) or Conti and Marini (2019)). Interestingly, R&D coopetition can also extricate firms from disadvantageous social dilemmas, as we further show in this article.…”

“…The latter result is in line with the relevant innovation literature, where the beneficial role of R&D agreements has been already identified. For example, Conti and Marini (2019) show that interfirm R&D agreements can effectively enhance enterprise gains from the internalization of industrial knowledge spillovers.…”