Leo A. Grünfeld
"Meet Me Halfway but don’t Rush
JEL codes: L13, O31, O32, O38
Keywords: R&D investment, R&D spillovers, absorptive capacity, RJV
In this paper, we analyse how R&D investment decisions are affected by R&D
spillovers between firms, taking into consideration that more R&D investment
improves the ability to learn from competing firms - the so-called absorptive
capacity effect of R&D. Contrary to earlier studies, we show that absorptive
capacity effects of own R&D do not necessarily drive up the incentive to invest
in R&D. This only happens when the market size is small or the absorptive
capacity effect is weak. Otherwise, firms will actually choose to cut down on
R&D. Furthermore, absorptive capacity effects also increase the critical rate of
spillovers that determines whether a research joint venture generates more R&D
investment than a non-cooperative setting.
Finally, we show
that strong learning effects of own R&D are not necessarily good for welfare.
Moreover, if the market size is large, welfare will be at its highest when the
learning effect is small.
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