Cooperation and competition in an R&D market with spillovers

We show that when spillovers are offsetting competition tends to be preferred to cooperation, but with incremental spillovers cooperation tends to be the more desirable. This same tendency, however, does not exist when considering the level of investment in R&D, where the type of spillovers has little effect, but the extent of spillovers is often crucial. Cost sharing usually leads to increased investment and profits compared with a fully competitive R&D market. However, it is not the most profitable form of cooperation. In most cases firms prefer a RJV to cooperation with cost sharing, and, in fact, a RJV is always preferred to IS agreements.