Abstract
In a dynamic patent race model we analyze the formation and breakup of joint ventures in relation to: (a) the relative as well as absolute position of the firms in the race; (b) the degree of competition in the ex post market. Fudenberg et al. (1983) studied the main features of a patent race when firms compete in R&D, showing that firms in the same position compete fiercely, dissipating the rent from innovation. By contrast, we show that if firms can cooperate or compete in R&D, and if they start in the same position, they cooperate at the outset but break their agreement in the last stage if they will be serious competitors in the downstream market, while, if they can collude in the ex post market, they cooperate from the outset and they innovate jointly. When the firms are lagged by one step, cooperation does not take place, except in the case the value of the race is negative and the cost saving due to cooperation is large. However, cooperation never occurs if the leader is more than one step ahead. Finally, when the firms cooperate in R&D they proceed to the discovery at low speed. We test these conclusions via experiments on the incentive to cooperate during the course of a race. The results of a sample of 86 races support our theoretical conclusions, although the experimental findings are less clear-cut than the theoretical ones.
Similar content being viewed by others
References
Anton, J. J., and Yao, A. (1994): “Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights.” American Economic Review 84 (1): 190–209.
Anton, J. J., and Yao, A. (2002): “The Sale of Ideas: Strategic Disclosure, Property Rights, and Incomplete Contracts.” Review of Economic Studies 69(3): 513–531.
Bhattacharya, S., Glazer, J., and Sappington, D. E. M. (1992): “Licensing and the Sharing of Knowledge in Research Joint Ventures.” Journal of Economic Theory 56: 43–69.
Brod, A., and Link, A. N. (1996): “On the Legal Environment of Research Joint Ventures.” University of North Carolina at Greensboro. Working paper.
Caloghirou, Y., Ioannides, S., and Vonortas, N. S. (2003): “Research Joint Ventures.” Journal of Economic Surveys 17: N. 4.
D’Aspremont, C., Bhattacharya, S., and Gérard-Varet, L. A. (1988): “Knowledge as a Public Good: Efficient Sharing and Incentives for Development Effort.” Journal of Mathematical Economics 30(4): 389–404.
D’Aspremont, C., Bhattacharya, S., and Gérard-Varet, L. A. (2000): “Bargaining and Sharing Innovative Knowledge.” Review of Economic Studies 67: 255–271.
De Fraja, G. (1990): “Strategic Disclosure of R&D Knowledge and Research Joint Ventures.” University of Bristol, Department of Economics, Discussion paper no. 90/278.
De Fraja, G. (1993): “Strategic Spillovers in Patent Races.” International Journal of Industrial Organization 11: 139–146.
Fershtman, C., and Kamien, M. I. (1992): “Cross Licensing of Complementary Technologies.” International Journal of Industrial Organization 10: 329–348.
Fischbacher, U. (1999): Zurich Toolbox for Readymade Economic Experiments. Zurich.
Fudenberg, D., Gilbert, R., Stiglitz, J., and Tirole, J. (1983): ‘‘Preemption, Leapfrogging and Competition in Patent Races.’’ European Economic Review 22: 3–31.
Grossman, G. M., and Shapiro, C. (1987): “Dynamic R&D Competition.” The Economic Journal 97: 372–87.
Hagedoorn, J., Link, A. N., and Vonortas, N. S. (2000): “Research Partnerships.” Research Policy 29: 567–586.
Harris, C., and Vickers, J. (1985): “Perfect Equilibrium in a Model of a Race.” Review of Economic Studies 52: 193–209.
Harris, C., and Vickers, J. (1987): “Racing with Uncertainty.” Review of Economic Studies 54: 1–22.
Hey, J. D., and Reynolds, M. L. (1992): “Experiments, Games and Economics.” In Artificial Intelligence and Economic Analysis: Prospects and Problems, edited by S. Moss and J. Rae. Berlin: Edward Verlag.
Isaac, R. M., and Reynolds, S. S. (1988): “Appropriability and Market Structure in a Stochastic Invention Model.” Quarterly Journal of Economics 103: 647–671.
Isaac, R. M., and Reynolds, S. S. (1992): “Schumpeterian Competition in Experimental Markets.” Journal of Economic Behaviour and Organization 17: 59–100.
Judd, K. L. (1985): “Closed Loop Equilibrium in a Multistage Innovation Race.” Kellogg Graduate School of Management. Discussion paper no. 647.
Kamien, I. M., Muller, E., and Zang, I. (1992): “Research Joint Ventures and R&D Cartels.” American Economic Review 82: 1293–1306.
Katz, M. L., Ordover, J. A., (1990): “R&D cooperation and competition.” In Brookings Papers on Economic Activity, Microeconomics, edited by M. N. Baily and C. Winston. Washington, DC: The Brookings Institution, pp. 137–91.
Perez Castrillo J. D., and Sandonís, J. (1996): “Disclosure of Know-how in Research Joint Ventures.” International Journal of Industrial Organization 15: 51–75.
Reinganum, J. (1981): “Dynamic Games of Innovation.” Journal of Economic Theory 125: 21–41.
Rosenkranz, S. (1997): “The ‘Valentine’s Day Problem’: Cooperation under Two-sided Incomplete Information.” Paper presented at the 24th E.A.R.I.E. Annual Conference, Leuven, Belgium, August 31–September 3, 1997.
Rosenkranz, S. (2001): “To Reveal or not to Reveal – Know-how Disclosure and Joint Ventures in Procurement Auctions.” Journal of Institutional and Theoretical Economics 157(4): 555–567.
Roy Chowdhury, I., and Roy Chowdhury, P. (2001) “A Theory of Joint Venture Life-cycles.” International Journal of Industrial Organization 19: 319–343.
Scott, J. T. (1993): Purposive Diversification and Economic Performance. New York: Cambridge University Press.
Scott, J. T. (1996): “Environmental Research Joint Ventures among Manufacturers.” Review of Industrial Organization 11: 655–679.
Selten, R., and Stoecker, R. (1986): “End Behavior in Sequences of Finite Prisoner’s Dilemma Supergames: A Learning Theory Approach.” Journal of Economic Behaviour and Organization 7: 47–70.
Silipo, D. B. (2000): “Cooperation and Competition in Patent Races: Theory and Experimental Evidence.” Dipartimento di Economia e Statistica, Università della Calabria, Discussion paper, no. 20.
Silipo, D. B., and Weiss, A. (2005): “Cooperation and Competition in an R&D Market with Spillovers”. Reserch in Economics 59: 41–57.
Tao, Z., and Wu, C. (1997): “On the Organization of Cooperative Research and Development: Theory and Evidence”. International Journal of Industrial Organization 15: 573–596.
Veugelers, R. (1993): A Profile of Companies in Alliances. Research Report D.T.E.W. 9325. Leuven: K. U. Leuven.
Veugelers, R., and Kesteloot, K. (1994): “On the Design of Stable Joint Ventures.” European Economic Review 38: 1799–1815.
Veugelers, R., and Kesteloot, K. (1997): “Bargained Shares in Joint Ventures Among Asymmetric Partners: Is the Matthew Effect Catalyzing?” Journal of Economics/Zeitschrift für Nationalökonomie 64: 23–51.
Vonortas, N. S. (1997): “Research Joint Ventures in the US.” Research Policy 26: 577–595.
Vonortas, N. S. (2000) “Multimarket Contact and Inter-firm Cooperation in R&D.” Journal of Evolutionary Economics 10 (1–2): 243–271.
Zizzo, D. J. (2002): “Racing with Uncertainty: a Patent Race Experiment.” International Journal of Industrial Organization 20: 877–902.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Silipo, D.B. The Evolution of Cooperation in Patent Races:Theory and Experimental Evidence. J Econ 85, 1–38 (2005). https://doi.org/10.1007/s00712-005-0115-0
Received:
Revised:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00712-005-0115-0