" Inter-firm complementarities in R&D: A re-examination of the relative performance of Joint Ventures "
JEL codes: D43; L13; L23
Keywords: Research Joint Ventures; Spillovers; Complementarity; R&D
Abstract: Should public policy encourage research joint ventures (RJVs) on the grounds of greater technological improvement or welfare? We compare outcomes of (non-cooperative) competitive RJV (perfect spillovers) to independent research (imperfect spillovers) in a duopoly when R&D production involves complementarities across firm-specific R&D resources. Taking into account complementarities leads to technological spillovers playing a dual role. Higher spillovers imply lower appropriability of returns to investment in the independent R&D processes (greater free-riding) but also greater access to the resources of other firms which increases the marginal productivity of investment in such processes. When complementarities are high enough, RJVs lead to higher R&D output and welfare (despite their public good nature) and this continues to hold for moderate degrees of complementarity, provided spillovers are low. Independent R&D creates greater technological improvement only if complementarity is moderate and spillovers are high or if the degree complementarity is very low. RJVs may yield higher welfare even when they lead to lower technological improvement.