Natural concentration in industrial research collaboration

Abstract

Empirical work shows that networks of research and development alliances are asymmetric, with a small number of firms involved in the majority of partnerships. This article investigates the welfarerelevant effects of such concentrated networks in a model of network formation in an oligopolistic market. We find that concentration is a typical characteristic of a socially efficient network, when the costs of collaborative activity are significant. Moreover, expanding on prior work relating to strategically stable inter-firm networks, we compare the stable and the efficient structures. Our findings suggest that the real-world networks might even exhibit too little concentration.

Upstream and downstream horizontal R&D networks

“…Notice the presence of complementarities between greater output and lower costs: more output makes the bene…t from lower costs more pronounced, and lower costs make output increases more valuable. 29 Therefore, due to a larger output base, lower marginal cost …rms (as a result of R&D collaboration) will …nd it more pro…table to vertically integrate compared to their non-collaborating counterparts. We conclude that horizontal R&D networks are likely to strengthen …rms'incentives for vertical integration.…”

The structure and dynamics of the global network of inter-firm R&D partnerships 1989–2002

“…The pronounced core-periphery structure in the international R&D network of the 1990s suggests that a fundamental impediment to the expansion of the network lies in the peripheral firms' failure to overcome some threshold level of collaborative activity before they initiate privately-financed partnerships on their own. As argued and shown convincingly in a large number of business and economics studies, the problem seems to lie in the presence of scale economies in the formation of R&D partnerships which require a minimum scale of production, prior alliance experience, and complementary in-house projects in order to pay off (Powell et al 1996;Morrison Paul and Siegel 1999;Westbrock 2011). Hence, active policy support for small and medium-sized firms seems indispensable (see also Tassey (2010) in this journal on a more proactive US policy reform).…”

Network Formation with Local Complements and Global Substitutes: The Case of R&D Networks

“…Similar to our framework, Dawid and Hellmann [2014]; Goyal and Moraga-Gonzalez [2001]; Westbrock [2010] study the formation of R&D networks in which firms can form collaborations to reduce their production costs. In particular, Dawid and Hellmann [2014] study a perturbed best response dynamic process as we do here, and analyze the stochastically stable states.…”

“…89 The profit of firm i, given the R&D network G 81 Generalizations to Bertrand competition are straight forward [see König et al, 2014b;Westbrock, 2010]. 82 Such R&D collaborations often involve competing firms, as for example a strategic alliance between Pfizer and Bayer, both operating in the pharmaceuticals sector (with primary standard industry classification code 2834) to develop treatments for obesity, type 2 diabetes and other related disorders in the year 2006 illustrates.…”