Working Paper: CEPR ID: DP2617
Authors: Larshendrik Röller; Ralph Siebert; Mihkel M. Tombak
Abstract: The literature on research joint ventures (RJVs) has emphasized internalizing spillovers and cost-sharing as motives for RJV formation. In this paper we develop an additional explanation: the incentive to exclude rivals in order to gain market power. We illustrate this effect in a simple model of RJV formation with asymmetric firms. We then test our hypothesis by estimating an endogeneous switching model using data from the US National Cooperative Research Act. The empirical findings support our Hypothesis that RJVs can be used as an instrument by which firms leverage their market power in the product market.
Keywords: joint ventures; product market competition; research and development
JEL Codes: L00; L60; O30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Larger firms (L25) | Exclude smaller rivals from forming RJVs (L24) |
| Size difference (F12) | Probability of forming an RJV (C35) |
| Firm size similarity (L25) | Incentive to form RJVs (L24) |
| RJVs (L24) | Market power leverage (D49) |
| RJVs (L24) | Market concentration (L11) |