IJEB accepted MS May 2015.pdf (2.68 MB)
Horizontal agreements and R&D complementarities: merger versus RJV
journal contribution
posted on 2016-06-23, 12:20 authored by Ben FerrettBen Ferrett, Joanna Poyago-TheotokyWe study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger and motivated by real-world evidence, we incorporate a probability that an RJV contract will fail to enforce R&D sharing. We find that a horizontal agreement always arises in equilibrium, which is consistent with empirical findings that R&D complementarities between firms positively influence the formation of horizontal agreements. The insiders’ merger/RJV choice involves a trade-off: While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater contract enforceability (quality) and R&D investment costs both favour RJV. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible. We also explore the welfare implications of the firms’ merger/RJV choice.
History
School
- Business and Economics
Department
- Economics
Published in
International Journal of the Economics of BusinessVolume
23Issue
1Pages
87 - 107Citation
FERRETT, B. and POYAGO-THEOTOKY, J., 2016. Horizontal agreements and R&D complementarities: merger versus RJV. International Journal of the Economics of Business, 23 (1), pp. 87 - 107.Publisher
© Taylor & FrancisVersion
- AM (Accepted Manuscript)
Publisher statement
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/Acceptance date
2015-04-24Publication date
2016Notes
This is an Accepted Manuscript of an article published by Taylor & Francis in International Journal of the Economics of Business on 15 Jun 2015, available online: http://dx.doi.org/10.1080/13571516.2015.1049848ISSN
1466-1829Publisher version
Language
- en