Working Paper: CEPR ID: DP4497
Authors: Dermot Leahy; J Peter Neary
Abstract: We introduce the concept of cooperative substitutes and complements, and use it to throw light on the conditions for a research joint venture to choose equal levels of R&D by all member firms. We show that the second-order conditions for a symmetric optimum take a particularly simple form, ruling out both excessive cooperative substitutability and excessive cooperative complementarity, and nesting conditions already derived in the literature. Finally we explore the implications of our results for the comparison between research joint ventures and a non-cooperative equilibrium.
Keywords: Bertrand and Cournot competition; cooperative substitutes and complements; R&D; research joint ventures; strategic trade; industrial policy
JEL Codes: D43; L13; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| excessive cooperative substitutability and complementarity (C71) | symmetry of R&D investments (O39) |
| uniform increase in R&D (O39) | unprofitability of R&D (O32) |
| arbitrary change in R&D levels (O39) | industry profits (D33) |
| deviations from symmetry (C62) | not profitable (L39) |
| small deviation from symmetric optimum (C61) | combination of uniform increase in R&D and reallocation of R&D among firms (O39) |
| degree of cooperative complementarity (C71) | conditions for symmetric outcome (C72) |
| symmetric outcomes (C72) | profit-maximizing under certain conditions (D21) |