DP2617 Strategic Choice of Partners: Research Joint Ventures and Market Power

Author(s): Lars-Hendrik Röller, Ralph Siebert, Mihkel Tombak
Publication Date: November 2000
Keyword(s): Joint Ventures, Product Market Competition, Research And Development
JEL(s): L0, L60, O30
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2617

The literature on research joint ventures (RJVs) has emphasized internalizing spillovers and cost-sharing as motives for RJV formation. In this paper we develop an additional explanation: the incentive to exclude rivals in order to gain market power. We illustrate this effect in a simple model of RJV formation with asymmetric firms. We then test our hypothesis by estimating an endogeneous switching model using data from the US National Cooperative Research Act. The empirical findings support our Hypothesis that RJVs can be used as an instrument by which firms leverage their market power in the product market.