Working Paper: CEPR ID: DP17467
Authors: Philipp Brunner; Igor Letina; Armin Schmutzler
Abstract: This paper provides a novel theory of research joint ventures for financially constrained firms. When firms choose R&D portfolios, an RJV can help to coordinate research efforts, reducing investments in duplicate projects. This can free up resources, increase the variety of pursued projects and thereby increase the probability of discovering the innovation. RJVs improve innovation outcomes when market competition is weak and external financing conditions are bad. An RJV may increase the innovation probability and nevertheless lower total R&D costs. RJVs that increase innovation also increase consumer surplus and tend to be profitable, but innovation-reducing RJVs also exist. Finally, we compare RJVs to innovation-enhancing mergers.
Keywords: innovation; research joint ventures; financial constraints; mergers; intensity of competition; licensing
JEL Codes: L13; L24; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| research joint ventures (RJVs) (L24) | innovation probability (O36) |
| weak market competition (L13) | innovation probability (O36) |
| poor external financing (G32) | innovation probability (O36) |
| research joint ventures (RJVs) (L24) | reduced duplication of research efforts (O32) |
| reduced duplication of research efforts (O32) | broader project exploration (L70) |
| broader project exploration (L70) | innovation probability (O36) |
| research joint ventures (RJVs) (L24) | expected consumer surplus (D11) |
| intense competition (L13) | innovation probability (O36) |
| research joint ventures (RJVs) (L24) | incentives to enhance innovation (O31) |