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RJVs in product innovation and cartel stability

Abstract. We characterise the interplay between firms' decision in product development undertaken through a research joint venture (RJV), and the nature of their ensuing market behaviour. Participant firms in an RJV face a trade-off between saving the costs of product innovation by developing similar products to one another, e.g., by sharing most of the basic components of their products, and investing higher initial efforts in product innovation in order to develop more distinct products. We prove that the more the firms' products are distinct and thus less substitutable, the easier their collusion is to sustain in the marketing supergame, either in prices (Bertrand) or in quantities (Cournot). This gives rise to a non-monotone dependence of firms' product portfolio upon their intertemporal preferences.

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Received: 1 October 1998 / Accepted: 14 December 2002

We thank the seminar audience at Centre for Industrial Economics, University of Copenhagen, where all three authors were affiliated at the time we presented the first draft of this paper, and also the two anonymous referees for Review of Economic Design for their detailed comments. The usual disclaimer applies.

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Lambertini, L., Poddar, S. & Sasaki, D. RJVs in product innovation and cartel stability. Rev Econ Design 7, 465–477 (2003).

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  • JEL classification: D43, L13, O31
  • Key words: R&D, supergame, collusion, optimal punishment, critical discount factor, product variety