Comments for R&D cooperation or competition?

I think we can clearly argue that R&D coopération has its strengths and weaknesses but in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research.

R & D is closely linked to monopoly situations because incentives are given through the protection of intellectual property. This allows firms to use their knowledge and prevents competing firms to benefit from their discoveries without their explicit consent. However, if the research is encouraged through the protection of knowledge and the promotion of monopolistic situations resulting, it only improves the well-being if its fruits are distributed and used at a suitable scale. Of course control must be made to regulate either cooperation or competition that’s why different systems exist.
For example we have ex ante policies that intervene before the implementation of research efforts and provide the conditions for implementation of this activity and the distribution of its fruits (cooperation agreement and direct help from the state).

R & D is an activity increasingly costly due to high technology projects more often than in the past. Also private incentives to innovate are all lower than uncertainty is high and the costs are high. This leads firms to integrate vertically and/or horizontally and cooperate to limit the risk of failure and will gather more easily the funds necessary for research. Also sometimes an innovation engages the entire industry in a particular technological trajectory ( HDTV in Europe and MUSE in Japan, ETSI – European Telecommunication Standards Institute).

The cooperation enables the sharing of risks inherent in innovation. The companies pool their assets, their efforts and expertise. Businesses benefit from synergies due to the complementary knowledge and economies of scale. Also, they share the fruit of joint research. This type of agreement has the property to avoid duplication of efforts and use without charge by competing firms (spillovers). In addition it must generate a situation “more competitive” when innovation is achieved.

Hagedoorn and Schakenraad (1990) identified five distinct organizational forms: the creation of a joint subsidiary assigned to R & D ( “joint venture”); the Convention agreed to conduct a joint research project with specific cost-sharing and expertise; the contractual agreement technological exchanges in which the parties undertake to exchange information; taking financial interest in a company with a strong potential for technological innovation; Finally, the partnership agreements between the supplier of intermediate goods using new technology and the producer of a final good. The agreements are either horizontal (member companies are competitors) or vertical (the companies are at different stages of the production chain).

The state may intervene as part of cooperation agreements designating itself the companies involved in the research project and paying the team. Governments of industrialized countries spend a large share of their budget to R & D. The share of expenditure financed by the state is 50% in France and the United States, 33% in Germany and 20% in Japan. In France and in the framework of the European Community, support for research is developed in a number of leading sectors and concerns mostly large cooperative projects. For exemple, the French government is implementing sectoral and targeted research programs to fund public schools. In addition it develops programs by major sectors and offers non-targeted policies by developing tax deductions systems. The European Community promotes support systems for R & D on specific projects and focuses on large pre-competitive research projects organized under the “Framework Programs ».

In conclusion, I will say that cooperation will be highly needed in the futur if we want to grow our market and society welfare but regulation on cooperative projects is needed to avoid collusion. I believe a better understanding of the innovation incentives will improve the political systems already developed to support cooperative R&D projects.

https://www.cairn.info/revue-d-economie-politique-2003-1-page-125.htm
https://en.wikipedia.org/wiki/Open_innovation
http://www.etsi.org
http://www.strategie-aims.com/events/conferences/14-ixeme-conference-de-l-aims/communications/2545-strategie-de-recherche-et-developpement-quelques-elements-pour-un-agenda-de-recherche/download

This article gives information about the choice a company has to make between R&D cooperation and R&D competition. R&D cooperation between firms brings many advantages such as pooling risks and sharing costs (IBM’s Watson Research Center, HP Labs, Bell Labs, and GE’s Global Research Center have indeed decided to gather their labs). For example, in 1992, about 37 per cent of firms in the German industry had formed inter-organizational arrangements in R&D with one or more partners to develop new products jointly (https://core.ac.uk/download/pdf/6928659.pdf). Moreover, according to Alain Vas and his strategy course (UCL), an alliance between two firms that cooperate can be of two types : “co-integration”, and “pseudo-concentration”. The first type occurs when every firm brings similar skills to make economy of scale on a step of the production process. For example, Renault and Peugeot gathered their strengths for the V6 motor, even if their final products were in competition in the market. The second type of alliance is when companies develop, product and commercialize a common product, from the same industry. The Concorde, that was developed by the French Sud-Aviation and the British Aircraft Corporation, can illustrate that case.

However, a publication by Bernard T. Ferrari and Jessica Goethals argues that rivalry can spur innovation. According to them, “Embedding rivalry in a culture where what’s celebrated most is the outcome—a better product or service—can be a powerful positive force.” But rivalry is here to understand as a comparison, that do not diminish one at the expense of the other (concept of “paragone”).

Thus, the best way to spur innovation is R&D competition or cooperation, to choose according to different aspects of the situation.

One main factor is the spillovers, that I can illustrate with the relation between countries : a country’s total factor productivity depends not only on domestic R&D capital but also on foreign R&D capital. The estimates indicate that foreign R&D has positive effects on domestic productivity, and that these are stronger the more open an economy is to foreign trade. (http://www.sciencedirect.com/science/article/pii/001429219400100E, European Economic Review).

Another factor could be the ability to combine these two concepts. As Ferrari and Goethals wrote, a solution to combine cooperation and competition is to build two or more teams within the company, working on the same project, at the same time. For example, the innovative GE90 (aircraft engine) was developed by two independent teams. (http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/using-rivalry-to-spur-innovation)

Another key element in balancing R&D competition and R&D cooperation is the possibility to compete with a company. For example, Intel (INTC) does have substantial technological rivals, but their research and development budget (upwards of $7 billion annually) is difficult to compete with (http://www.dividendmonk.com/7-companies-with-unrivaled-economies-of-scale/).

Then, a factor that influences the choice of R&D cooperation or R&D competition is the fear that partners of a firm steal the know-how of another. The development of new products requires indeed an active search-process involving several firms and institutions to tap new sources of knowledge and technology (https://core.ac.uk/download/pdf/6928659.pdf). Exchange of information and resources with different companies are important points in the innovation process. By this, firms become more and more dependent on the know-how of other companies and institutions, as far as it allows them to gain expertise which cannot be generated inhouse.

Finally, a barrier to the cooperation between two firms can also be the unification of heterogeneous structures, the coordination of distinct organizational routines and the combination of complementary assets and resources. Enterprises could thus choose the competition to spur the innovation.

In conclusion, choosing R&D competition or R&D cooperation depends on many factors, depending on the situation, the sector and the existing competition.

According to this article, there is no clear answer which is better R&D cooperation or competition. Some people say that R&D cooperation is better because firms handle their R&D well. Others say that R&D competition is better to accelerate innovation. The optimal answer depends on the environment, such as spillover of R&D. The large spillover of R&D will leads more R&D when it is a cooperation situation, whereas the small spillover will leads less R&D when it is a competition situation.

I considered what is R&D spillover. I suppose different industry field, science and general firms (I am not sure what should I say in general term). I think a lot of scientists research to invent an epoch-making invention, or to obtain award, or to contribute to society by improving technology. On the other hands, general firms like restaurants and super markets focus on own profits. They strive to make their profit maximize. Comparing both situations, the former would prefer R&D cooperation to competition because its spillover would be large enough. Indeed, it is often seen cooperation research and academic-industrial collaboration. It does make sense to cooperate to invent and to contribute society especially in medical science. However, the latter would choose R&D competition, because it will be hard to make larger profit if they cooperate each other.

As article mentioned, the degree of R&D spillover affects the choice between R&D cooperation and competition. I think market structure also affects the choice. For example, the convenience store market in Japan is oligopoly. Seven-eleven and Family Mart and Lawson are major firms in the market. Seven-eleven occupied 40% of the market, and others’ market share is nearly same. Under such situation, they would not choose cooperation R&D, because there is any motivation to cooperate R&D. The idea of convenience stores is to be convenient for consumers, so they sell almost same products, and they open 24 hours. To make profits, they have to make differences each other, such as the product of private brand and main targets. As only differentiation makes firms profit in convenience stores market, they would not choose R&D cooperation.

Reference
https://foodindustry.asia/top-three-trends-shaping-convenience-retailing-in-asia
http://www.csnews.com/product-categories/foodservice/guy-jeff’s-excellent-adventure-japan
http://www.thecsuite.co.uk/cio/learning-development-cio/university-and-business-ip-cooperation-to-boost-uk-innovation/

Before offering other factors that may influence the choice between cooperation or competition, I’d like to echo what I perceive as a very important argument that was mentioned in the blog post: Cooperation incentivises firms to invest more in R&D as firms will be sure that they are not engaged in a “winner take all’ environment. This is important because it acts as a guarantee to the firms that their resources will not be wasted in case they don’t reach the innovation before their rivals. The shared risk aspect is very important in understanding why rivals cooperate in R&D.

Another important factor to explain cooperation would be the creation of synergies. When firms cooperate, they share their know-how and that often leads firms to be able to further streamline their costs of production. Cooperation on the R&D front may be able to merge the most efficient aspects of two firms in order to pursue a common innovation and goal. An example of the synergy effect would be Nissan and Renault who have been working together on R&D (and on other fronts) primarily since 1999.

The previous argument however may also prove to defend R&D competition. 2 rival firms are often reluctant to cooperate as they may have a fear that one firm will steal a particular know-how from the other firm that allows them to gain a competitive advantage. As an example I will use Burger King’s proposal to team up with McDonalds. McDonalds turned down the opportunity to create the legendary ‘McWhopper’, a blend between the 2 leading burgers of both fast food chains, because, allegedly, of fears that it would hinder their “friendly business competition.”

I know that the previous example isn’t technically an example of a proposed cooperation in R&D but I feel that it does highlight the point I was trying to make very well: Competitors will often be wary of working with their rivals. McDonalds no doubt didn’t want to share their secret sauce recipe with their rivals.

Furthermore, this links back to a term explained by Cohen and Levinthal in their 1990 paper “Absorptive Capacity: A new perspective on Learning and Innovation”. They referred to absorptive capacity, a firm’s ability to process and utilize new information which influences their innovative capabilities. The reason this ties back to my previous point is because cooperation bears the risk of a rival firm, with a good absorptive capacity, using the new know-how acquired from cooperating to gain a competitive edge. This may remove a firms’ incentive to cooperate with its rival in R&D.

Another influencing factor is the role of public intervention. Cooperation in R&D can in some cases be a hindrance to competition. If for instance 2 of the leading firms on a market decide to cooperate on an innovation that could kill off all other competitors in the market, then competition authorities may step in to stop the cooperation. In this case, the ‘choice’ of cooperation or competition would be taken by the competition authorities.

Sources and complementary readings:

More on the Nissan-Renault alliance: https://group.renault.com/groupe/un-groupe-une-alliance-des-partenariats/un-groupe-fort-de-son-alliance-unique/

Article consisting of McDonald’s CEO’s comments on the potential temporary cooperation with Burger king: http://money.cnn.com/2015/08/26/news/companies/mcwhopper-mcdonalds-burger-king/

Cohen, W., Levinthal, D., 1990. Administrative Science Quarterly, Vol. 35, No. 1, Special Issue: Technology, Organizations, and Innovation (Mar.,1990), pp. 128-152.

Considering which to choose R&D cooperation or competition, we have to plug in a lot of variables, such as number of firms, the scale of R&D, how beneficial it will be, or everything. Taking care of everything is, at least for me, impossible. Thus, let me assume there are only two firms (namely duopoly condition) and there is no spillover. Both of them can invest in three areas A, B, and C, and Firm1 has research advantage in A and Firm2 has in B. In the area C, two firms have the same level of knowledge.
Under such condition, does Firm1 have incentive to invest in area B or Firm2 have incentive to invest in area A? Or Firm1 have incentive to cooperate R&D in A? I don’t think so because they can make more profit when they invest in their specialized area and they should protect their knowledge to be monopolist in certain area to gain maximized profit. Someone will say this conclusion is due to not considering spillover effect and if there is, Firm1 choose cooperate in area A because knowledge spillover allows Firm2 to use the innovation and Firm1 can’t become monopolist. Thus choose cooperation and pooling risk and decrease cost is more efficient way for Firm1. However, if competitor, in this case Firm2 can enjoy large spillover benefit, it will not accept cooperation even if Firm1 offer because without cooperation, Firm2 can use innovation. So Firm2’s optimal strategy might be wait and mimic Firm1’s technology.
Thus, my opinion is, cooperative R&D will exist when firms knowledge level is the same in certain area. Otherwise, they should invest in their fields of expertise. Since cooperation increase the probability of success in investment and it can be risk pooling, it promote them to invest in R&D. Of course, my assumption is far from the real situation. If there is spillover, we have to consider its size of effect. In addition to this, the number of firms is very crucial factor. If there are three firms and one of them is dominant and the others are small, smaller firms might have incentive to cooperate to compete to dominant one. So I hope that my opinion give you the new point of view and help your thinking.

References
“Cooperative and Noncooperative R&D in Duopoly with Spillovers” (American Economic Review 78: 1133-1137; quoted 1883 times according to Google Scholar consulted on November 8, 2012).
Leveque Meniere(2004) Creative Disruption

The article points out to the knowledge spillover effect that could influence the decision of competition vs. co-operation. In today’s fast evolving world, a firm can’t focus on all aspects of innovation, and should rely on its environment to a large extent. Complementary skills and resource sharing ensure that a firm focuses on certain kinds of innovation while relying on others for the rest. However, there are transaction charges in such a case, and it will depend on whom the collaboration is being evaluated with. If the co-operation is with a supplier or a distributor, the extent of mutual benefits may ensure that this cost remains low. However, if even one party has a higher bargaining power, the transaction costs may cause the overall benefits to be very low. If I were to think of it, I see crowd-sourcing also as a case where co-operation may be better than competition. A member of the crowd can use the platform of the firm and get his or her benefits in return, whereas an attempt to directly compete with the firm may entail huge costs.
Another factor which may be decisive is – what is goal that needs to be achieved. If the motive of the R&D is to come up with a technology that gives competitive advantage, competition instead of co-operation may be the correct choice. Innovations that add to the firm’s product portfolio or enhancements aimed at increasing sales may best be done without any collaboration with a competitor. Many a times, research JVs for this purpose end up with legal issues about ownership of the outcome and transaction costs may be huge in such a case. On the other hand, facility sharing or resource sharing to reduce costs may come through collaboration rather than competition. This is where economies of scale come into the picture. One of the papers listed below also provides empirical evidence of this.

References: http://ftp.zew.de/pub/zew-docs/dp/dp06059.pdf
http://www.sciencedirect.com/science/article/pii/S1090944304000584

As underlined in the article, the level of spillover seems to be of great significance when companies face the choice between cooperation and competition regarding their research and development (R&D). However we could also wonder if there are any other factors that influence the choice between cooperation and competition in R&D?

First of all, when facing such a situation, I am the opinion that the company has to take into account the cost requirement. Indeed, some sectors are “cost consuming” (e.g. pharmaceutical). This means that the firm needs to invest a large amount of money in their research and development for the sake of competition. If the cost required is high, the company should cooperate with the incumbent in order to share this cost.

Besides, the risk usually associated with the innovation should be well assessed and foreseen by the company. In case there is a risk to invest in research and development, the company should opt for a collaborative approach with a view to reduce the given risk. Indeed, research and development can turn out to be costly and the final result is not always ended by a success. Therefore the company has to be able to deal with such a failure. An unfruitful research and development might have serious financial implications for the firm, but it can also damage the whole brand. Therefore, it can be of judicious decision to share the risk with its competitors.

The knowledge necessary to carry out the research and development can be perceived as another incentive that lead to cooperation between companies. It may be valuable for a company to share its knowledge with a firm involved in another sector. Such cooperation can pave the way to innovation and lead the company to expand its range of products. Philips is a great example that illustrates this argument. Philips has signed more than 30 agreements with leader firms, which are present on other markets. For instance, Philips has an agreement with Sara lee (Douwe Egberts). This first cooperation led the firm to develop the so-called coffee machine Senseo. The firm has also a cooperation agreement with Visa that has been translated into a new technology for chip without any contact. As we can read on their website, Philips gets the most out of its several cooperation agreements. Indeed, this approach has allowed the firm to market several products, which they would not have been able to develop on their own because of the lack of knowledge. As a result, the firm has diversified its range of products and become famous in other sectors that were not its chosen field several years ago. In addition to being a great deal for the firms, this alliance also benefits to consumers who can enjoy new technologies that ease their daily life.

On top of all this, collaboration can generate a considerable time saving for a company. This is especially the case of sectors like the pharmaceutical and health industry where researches usually take several years. Therefore, the company has a vested interest in sharing their knowledge and R&D programme with another firm. Globally, when the firm has a limited period of time and seeks to launch a product as soon as possible, they should opt for collaboration. The share of experience and knowledge would allow companies to accelerate the whole production process and to develop a high quality product faster than if they would have done it on their own.

Finally, I would say that sharing research and development with competitors should depend on the degree of control the company wants to maintain on its own innovation and research. Indeed, the more level of control a company wants to keep, the less it will be attracted by cooperation. If the company wants to keep control on its innovation, the firm can be tempted to get over a collaboration and compete on its own. In this respect, the recent talks between Apple and the German car manufacturer BMW provides a sound example. Executives of both companies were reported to have kicked-off negotiation over a potential collaboration for the development of a high-tech electric car. However the talks did not come to a conclusion as Apple wanted to develop the car on its own. What is more, BMW was keen on producing some spare parts of the car but unwilling to share its specialized knowledge with the US firm. This example demonstrates that collaboration is not always easy to implement due to the various, and some times incompatible, interests at stake.

To conclude, the spillover effects seems to play a key role in the firm’s decision to cooperate or to compete when it comes to research and development. However, it must be reminded that other factors can also influence the decision. In view of the foregoing, it seems that the decision will be based on the goals and requirements of the company but also on the characteristics of the sector in which the firm is involved.

Sources

JEAN, S. (2015). Apple Inc (AAPL) and BMW to resume electric car collaboration. The next digit. Online on http://thenextdigit.com/24685/apple-aapl-bmw-resume-electric-car-collaboration/. See the 14th October 2015.

Philips website: http://www.philips.be/fr/about/company/global/partsofthewhole/alliances/index.page

In our day, R&D is essential to be innovative. That is why the businesses, in all industries, are investing heavily in this department.

R&D is a department that requires large investments and, above all, that takes time. This is why some companies are moving towards cooperation in R&D with other companies in the same sector or not.

Indeed, the transfer of knowledge can be done in several ways: either between two companies in the same sector or between two companies from different sectors but complementary in some way.

Cooperation has many advantages because it helps to spread the costs, but also the risks. Moreover, cooperation is positive for the society as it avoids unnecessary expenses (i.e. when two companies lead to the same result, it is a waste of money because only one company could focus on this research) and it allows some significant time savings in the discovery of key innovations (i.e. scientific laboratories working together will discover a crucial vaccine faster than if they worked each on their side).

But there are still many companies that choose the competition in R&D rather than cooperation. The main reason is the profitability of the discovery. Indeed, it is sometimes difficult to proportionally divide the profit of the discovery with respect to investments made by the different companies of the cooperation. It is mainly for this reason that the competition is still present in the area, in order to allow the company to recover its initial investment and to make a profit in order to have funds for the future researches.

From my point of view, cooperation is essential for advanced technology and especially scientific. Too many diseases remain untreated (here is a concrete example that is important to me, as for many others). To find the best treatment and in the shortest time, cooperation is crucial between different companies. But, through this cooperation, some companies cannot work less than others by relying on the results of other companies of the cooperation.

So there will always be pros and cons to cooperation as in the competition, although for the society, cooperation seems to me the way to follow.

References:

http://www.jstor.org/stable/1807173?seq=1#page_scan_tab_contents

https://www.google.be/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCMQFjAAahUKEwjIn6uxw8HIAhVD7BQKHU2UDDs&url=http%3A%2F%2Fweb.iese.edu%2Fbcassiman%2Faerversion-final.pdf&usg=AFQjCNHPOQYx4fIr9zrx4XSP7MjFRULw3A&sig2=6lPRaqgyTE6zBXmljKoB7g

https://www.google.be/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCMQFjAAahUKEwjIn6uxw8HIAhVD7BQKHU2UDDs&url=http%3A%2F%2Fweb.iese.edu%2Fbcassiman%2Faerversion-final.pdf&usg=AFQjCNHPOQYx4fIr9zrx4XSP7MjFRULw3A&sig2=6lPRaqgyTE6zBXmljKoB7g&cad=rja

This article gives us information about the choice of a company to make cooperation or competition in R&D. Cooperation allows pooling of risks, sharing of costs, elimination of duplication of efforts, pooling complementary skills and exploiting econonomies of scale. « R&D cooperation leads to more R&D than R&D competition when spillovers are large but to less R&D when spillovers are small ».
Competition is a good way to use rivalry to prompt innovation and develop better products and services. Cooperation leads to larger investments in R&D that benefits society as a whole. But there exist other factors that influence this choice.

First of all, joint R&D is used to complement internal resources in the innovation process, improving the innovation input and output measured by the intensifying of in-house R&D or the realization of product innovations. About the input side, the intensify of in-house R&D also stimulates the probability and the number of joint R&D activities with other firms and institutions. 1

Furthermore, we can also observe that large firms and firms in the chemical and pharmaceutical industry are more likely to be involved in industry science links. As a matter of fact, it is easier for a firm to cooperate when the risk is low, it allows to share costs.2

Then, we also notice there are heterogeneities in the determinants of innovating firm’s decisions to share in R&D cooperation, differentiating between four types of cooperation partners : competitors, suppliers, customers, and universities and research institutes. Determinants of R&D cooperation differ significantly across cooperation types. 3

Moreover, we know that information flows and spillovers have an impact on R&D cooperation, but we can also observe that other factors like firm size, cost and risk sharing, and complementarities can also have an effect on the decision made by a company to cooperate or not. 4

Finally, firms conduct R&D because it can generate the knowledge to produce new products or existing products at lower cost. Empirical studies found that the social rate of return was approximately ten times the private rate in the scientific instruments industry. « The gap between social and private incentives arises because an individual profit-maximizing firm ignores the effects that its actions have on welfare of consumers and the profits of other firms. » 5

In conclusion, we can say that the decision to make cooperation or competition in R&D depends on a lot of factors like the circumstances, the types of company, the firm size, the risks, the complementarities, the spillovers, the context, the incentives and many more.

Sources :

1 : W Becker, J Dietz – Research policy, 2004 – Elsevier, http://www.sciencedirect.com/science/article/pii/S0048733303001276
2 : R Veugelers, B Cassiman – International Journal of Industrial Organization, 2005 – Elsevier, http://www.sciencedirect.com/science/article/pii/S0167718705000251
3 : R Belderbos, M Carree, B Diederen, B Lokshin… – International Journal of Industrial Organization 2004 – Elsevier, http://www.sciencedirect.com/science/article/pii/S016771870400102X
4 : A López – International Journal of Industrial Organization, 2008 – Elsevier, http://www.sciencedirect.com/science/article/pii/S0167718706001391
5 : ML Katz, JA Ordover, F Fisher… – Brookings papers on …, 1990 – JSTOR, http://www.jstor.org/stable/2534782?seq=1#page_scan_tab_contents

To my understanding, the choice between cooperation and competition across firms is conditional, and so called cooperation between firms is no more than a strategy to compete against other potential rivals. R&D spillovers is an important factor, but the degree of R&D spillover is closely related to market structure. I’d like to elaborate my point by comparing different choices under different market structures.
While some firms choose to cooperate to pool risk, share cost and eliminate duplication, thus to sustain a certain portion of the market or to extend, monopolies are less likely to cooperate. Monopolies occupy the major market, usually, they own adequate capital resource and human resource, they don’t have as much concern on R&D cost or duplication of effort as other companies do, and they can take most of the innovation risks. If there is any risk, monopolies’ innovation risk only comes from potential threat of emerging firms. To prevail in the industry over time, monopolies are more likely to utilize their existing advantages and choose R&D competition instead of cooperation. Even if there is R&D spillover after, monopolies are always capable to take the lead before small firms get the chance to copy their innovations to catch up, or free-ride on monopolies’ effort.
Vise verse, in a perfectly competitive market, none of the firms is so confident to be the winner and takes all, neither do they have the capacity to resist the risk of innovation from other firms, so firms under fully competitive market will probably choose to cooperate on R&D innovation. Besides sharing of cost and risk, eliminating duplication of effort and exploiting economies of scale, R&D spillover is also mutual among firms that have equal resource and equal capacity to innovate. They free-ride on other firms’ effort when other firms innovate one step ahead, and also they are free-ridden by other firms when they happen to be the first one on some innovations. No one can be too far ahead the others and no one will lag behind too far. So they choose R&D cooperation.
When it comes to duopoly, it turns to be like a game theory process. Firms in duopoly don’t want to take the risk of R&D innovation, they don’t have enough capital to afford the cost of innovation either. They consider about cooperating with other firms, but they hesitate because they don’t want to be free-ridden if they put more effort and capital to proceed R&D, since there is R&D spillover. But if they don’t cooperate, they fear of being lagging behind after other firms innovate first. To avoid internecine competition, and also from long strategical point of view, duopoly is more likely to choose R&D cooperation. But it is not absolute cooperation between these firms, cooperation is just a means to the end, and the end is to compete against potential rivals. In other words, firms in duopoly try to counterweigh their competitors by cooperating with their competitors.

The choice between competition & cooperation in R&D is a choice that highly depends on the view and the purpose of the concerned firms, but also on the context. If the company is very profit-driven, it would rather choose to compete if they work on an innovation that is promising and that is protected by some patents. The firm then has to invest more capital, both in terms of money but also human capital. Competition requires having the best skills to overthrow the other firms. Having the right people at the right place is then essential.

On another hand however, some industries need to collaborate to obtain results. A single investment can then benefit all the collaborating firms, which increases the total investments that can be made. Cooperation improves thus the efficiency of the firms. Most of the firms that choose this are firms whose products demand enormous research costs, like the pharmaceutical and medical sector. By working together, they save money but also time. And saving time means for them saving lives. In these cases then, cooperation is a better choice.

Some studies advance the argument that the type of partner and the sector in which the firm belongs are main factors that influence the choice “On the one hand, in industrial firms an increase in the perception of risk reduces the probability of entering into agreements with other companies in the same group, with competitors and with institutions, but does not affect cooperation with suppliers or customers, while the firms in the service sector facing a greater risk prefer not to cooperate with suppliers or customers, and institutions. “

So even if we can acknowledge that spillovers are on top of the list of factors that you have to take into account, we see that R&D spillovers aren’t the only factors in the decision game.

http://www.ub.edu/irea/working_papers/2012/201213.pdf
http://www.brookings.edu/~/media/projects/bpea/1990%20micro/1990_bpeamicro_katz.pdf

The question: “is it better to compete or cooperate regarding R&D?” is rather difficult to answer. There is no doubt that companies have some incentives to cooperate in R&D as “it allows them to better manage the process by pooling risks, sharing costs, eliminating useless duplication of efforts, pooling complementarity skills, or exploiting economies of scale” as stated in the present article. However, as Bernard T. Ferrari and Jessica Goethals explained, there are situations in which rivalry is preferred to spur innovation. These findings highlight the fact that the best choice between cooperating and competing in R&D is dependent on the circumstances in which the firms are interacting.

Before going any further in the analysis of these circumstances, I think it is important to define the scope of the benefits considered as well as the moment in the R&D process where the firms compete or cooperate. Indeed, according to Michael L. Katz and Janusz A. Ordover (1990), the benefits of cooperating or competing can be divided into private and public welfare. Private welfare here refers to the benefits absorbed on the companies’ side whereas public welfare is defined as an increase in terms of consumer surplus or society’s well being. Regarding the moment in the R&D process where the firms compete or cooperate, the authors also mentioned that the cooperation could occur before (ex ante) or after (ex post) the innovation has been developed. In this case, the cooperation ex post would be in the form of the sale of patent rights to another firm.

In order to facilitate the already hard enough question of cooperating versus competing in R&D, I decide to consider only the perspective of companies engaging in such interactions (private welfare) and also that the potential cooperation would be before the final development of the innovation (ex ante). Indeed, my decision is supported by the fact that the present article focuses more on the private welfare and the cooperation ex post assesses the question of transferability of the patents, subject that has already been discussed in a previous article (reference to “Market for technology: do they really work?”).

In this context, I report some circumstances or factors that could influence companies to cooperate or compete in R&D.
(1) A first factor is the degree of R&D spillovers, as developed by Claude d’Aspremont and Alexis Jacquemin (1988). According to their study, the extent to which the R&D performed by one firm can benefit other firms is an important factor that influences cooperation. In that sense, the higher the degree of R&D spillovers, the more cooperation will be preferred to competition.
(2) According to Kamien and Zang (2000), another factor would be the extent to which a firm could absorb external knowledge in their own research. In that regards, their results state that research cooperation is more likely to occur between firms when the research agenda is “general” (as opposed to “specific).
(3) A third factor would be the degree of complementarity between the potential cooperating firms. The higher the complementarity, the more likely the firms will choose cooperation against competition. Indeed, if there is a high complementarity in processes or operations between firms, it is more likely that they will find complementarity in the R&D process that would result in higher incentives to cooperate. However, if the complementarity between the underlying firms comes from the fact that the firms are acting in the same market, the effect should be discussed further.
(4) This last discussion actually highlights a fourth factor influencing cooperation in R&D. This last factor is the competitive relationship between the potential cooperative firms. It is clear that cooperation in R&D would be preferred between players acting in different markets. Indeed, it would allow the cooperative firms to keep the innovation for themselves in their own market and enjoy a competitive advantage against their direct competitors. However, following the same logic, if the cooperation concerns firms that are direct competitors, it less likely to happen.

To conclude, despite the undeniable benefits that cooperative R&D would bring, the answer to the question: “is it better to compete or cooperate regarding R&D” depends on several circumstances or factors. I presented four potential factors that could influence the decision to cooperate or compete in R&D. These factors have been defined under the assumption that the firms would cooperate or compete before the innovation has been developed (ex ante) and by considering only the private welfare. There may be other factors influencing the decision such as the level of competition in the market of the underlying firms. However, I preferred not to address this question because the consequences of higher competition on the cooperation in R&D do not seem to go in one direction.

Sources:
– https://www.ipdigit.eu/2010/09/rd-cooperation-or-competition/
– http://www.mckinsey.com/insights/innovation/using_rivalry_to_spur_innovation
– KATZ, M., L., ORDOVER, J. ,A. (1990), R&D Cooperation and Competition, retrieved online, http://www.brookings.edu/~/media/projects/bpea/1990%20micro/1990_bpeamicro_katz.pdf
– D’ASPREMONT, C., JACQUEMIN, A. (1988), Cooperative and Noncooperative R&D in Duopoly with Spillovers, retrieved online, http://www.jstor.org/stable/1807173?seq=1#page_scan_tab_contents
– KAMIEN, M., I., ZANG, I. (2000): Meet me halfway: Research Joint Ventures and Absorptive Capacity, International Journal of Industrial Organization, 18, 995-1012.

The strategic choice between cooperation or competition is a at my opinion extremely dependent of the values that the company has and which personal objectives the firm has in mind. Next to the fact that for many economic reasons there are many pro-arguments for competition I want to say something about pro-arguments for cooperation within and across firms. I make a clear distinction between R&D competition/cooperation between and within firms.

In the perspective of R&D across firms spill overs are not the only reason to do cooperation or not. The paper by Claude d’aspremont says clearly that it is based on a model ignoring many crucial aspects of R&D activities. I think for example to pharmaceutical research to find as soon as possible solutions against bad diseases or epidemics. In these kind of situations it is indispensable that a cooperation exists and particularly between ngo’s. Therefore it is important that there are any obstacles made by profit-driven companies. No competition between firms in order to pool complementary skills, exploiting economies of scale and spread costs in order to find the fast as possible a solution for this disease.

In the perspective of R&D competition within firms, particularly on the level of productive rivalry as modern forms of « Paragone » is to my opinion a very narrow way of thinking. As the paper by bernard, Goethals and Ferrari says (2010) that many companies overlook the ability of productive rivalry to stimulate innovation. The paper of this statement doesn’t tell anything of what the consequences can be on the level of well being of employees of these kinds of companies. Setting employees up against each other to foster creativity and performance by for example setting up two or more teams working on the same project at the same time within a firm is not socially desirable. The worst is that these kind of R&D strategies are maybe strongly contributing to R&D but they don’t take into account the social health of the employees. People might get very stressful or jealous where in the worst cases hate will dominate as an incentive to work. These can consequently lead into a decline of the functioning of a company. The Harvard business review (2005) says that it is extremely important to create colleagues of the employees and not competitors. Secondly, I was thinking if it is acceptable to look back to the Renaissance to find answers for stimulating R&D through competition within the firm? In that time social and human theories were strongly underdeveloped compared with where are now on human and social level. Therefore i prefer a pure cooperative strategy for R&D within the firm instead of creating rivals.

http://www.mckinsey.com/insights/innovation/using_rivalry_to_spur_innovation

https://hbr.org/2005/09/create-colleagues-not-competitors

In order to compare Competition and Cooperation in R&D, we can compare many different perspectives – a behavioral viewpoint, an economic view and a normative view and others.
Firstly, from a purely behavioral viewpoint, if we look at how R&D innovations take place in organisation, both cooperation and competition have their own merits in different contexts. Merely pumping more money into R&D does not automatically create new and viable sources of innovation unless it provides both the resources as well as creative freedom to the people working on such innovations. In businesses where synergistic effects are strong or there are a lot of different players using the same basic elements or where there are different tiers to any innovation, such resources can free them from the drudgery of ‘reinventing the wheel’, and instead focus on the more challenging innovations pushing new frontiers. For example, in the video game development industry, many game studios now rely on the frostbite engine for its pioneering work on graphics, design and textures to focus on other elements of gameplay. Thus cooperation is better than competition here. The ‘spillover’ in this case is one way, and as a public good, more innovation benefits everyone, with some players focussing on lower tier design elements and others focussing on higher tier gameplay. Similarly, NASA outsources some of the lower tier robotics to other firms while focussing on higher tier research itself.
In other cases, primarily where there is less tiering of innovation – competition works best as it acts as a stronger motivation for the people involved. In Renaissance Italy, much art, scuplture and architecture was developed through ‘masters’ trying to outdo one another. Here it is essential that barriers to entry are low so that the threat of new rivals keeps R&D innovators on their toes. This problem is particularly amplified for incumbents in an otherwise innovation driven oligopoly where fear of new innovative competitors drives firms to either compete or acquire talent to maintain the status quo. If, however, it was possible to cooperate with someone not necessarily encroaching your sphere of expertise – cooperation is still possible. Apple actually relies on Samsung with its superior process innovation for manufacturing of core components, while their rivalry in high end electronics continues to push frontiers.
Another result of the behavioral perspective is the ubiquitious “Peer Effect”. Competition and peers can actually determine the direction of both R&D spending and managerial focus. So if in my highly competitive industry, I believe that Mobile technology and not the Cloud computing is the future, others might follow suit leading to more overall R&D and consequently more innovation in Mobile Technology instead of Cloud technology

Secondly, from an economic standpoint, if we consider the results of R&D as a public good, it is not only spillover effects that determine innovation overall. From a microeconomic & game theory perspective, every firm could look at its cost-benefits of collusion vs competition. Even with high Spillover, an industry might have IP regulations or the ability to charge a premium to customers that make it more economically logical to compete rather than collaborate. Even if the risk adjusted cost of developing a new drug alone is 10X higher than doing so in collaboration, if the drug treats a previously incurable disease & I can out-patent competitors – the windfall could be potentially huge enough to outdo collaboration. This works even better in industries that have lower risk of R&D investment meeting with failure (buy superior talent = success).
Alternatively, the logic of using up stagnant capital in R&D investment for tax purposes is why a lot of Indian firms choose to invest by collaborating with newer companies that may or may not work. This sense is shared by VCs who collaborate with multiple companies with low spillovers in developing an ecosystem that supports the broader portfolio that they are betting in.
From an investor standpoint too,a company might simply collaborate of R&D investment just to show its shareholders that it is “serious” about innovation and maintaining an edge
Finally, from a puely nomative viewpoint – collaboation is considered moe ethical. Since your pupose is to serve your customer’s interests best, you should do so by leaving no stone unturned (including collaborating with potential competitors). This works be.st in the long run rather than short run economic states where sometimes you, and other times your competitor might come up with that groundbreaking innovation. However, collaboration also exposes you to non-compete clauses and chances of price determining collusion which are harmful to customers, and ultimately to the entire industry as consumer confidence is eroded.

First, it is somewhat misleading to compare the McKinsey Quarterly article by Bernard T. Ferrari and Jessica Goethals to the article by Claude d’Aspremont and Alexis Jacquemin, as the objective of each article differs. The McKinsey article suggests methods by which firms can boost their own capacities for innovation by borrowing from Renaissance practices. The second article discusses whether competition or cooperation between firms will yield the best R&D results, by considering externalities. Whether within their own walls firms emphasize rivalry or cooperation in R&D, has no apparent impact on whether they should collaborate or compete in R&D, with other firms.

Further, when extrapolating from the McKinsey article to a situation of competing firms, the article seems to suggest that a middle ground between competition and cooperation would be the most beneficial. The authors call this middle ground “rivalry” or “paragon”, enabling a “comparison” of artists (or firms). This “comparison” describes what a consumer does when choosing a product, and would seem to suggest that more cooperation is beneficial between firms. On the other hand, however, in the production of art, the artists are less concerned with added costs from repeating each other’s work, and more concerned with their unique internal artistic process. Again, the comparison with the Renaissance would not seem to be applicable to inter-firm rivalry.

Therefore, the McKinsey article does not actually challenge the conclusions of Claude d’Aspremont and Alexis Jacquemin .Overall, when firms benefit from high levels of spillover as a result of cooperation, they are likely to continue to cooperate. When firms benefit from small levels of spillover, they will be more likely to compete. Rather than following the assumption that firms should collaborate during the R&D phase, and compete during the production stage, Claude d’Aspremont and Alexis Jacquemin suggest that the amount of spillover should be the determining factor at both phases. The best lesson taken from comparing the two articles, is to assume that in the Renaissance, the artists benefited greatly from their high degree of collaboration, without losing their individual uniqueness and competitive earning power. Therefore, we could conclude that the McKinsey article provides an example from the Renaissance of a high level of spillover reinforcing collaboration in artistic R&D, and benefiting the artists (or companies).

The nature of the industry determines the utility of cooperation vis a vis competition.
The nature of the industry depends upon various variables including – 1. number of competitors 2. existence of patents 3. primary industry driver (price vs quality etc) 4. location of the target customer segment

1. An industry having several competitors and a fragmented market structure would probably benefit more if there is less of competition and more of cooperation. In perfect competitive environments, following microeconomics theories, the actions of one firm has little impact on others. Hence, if all firms come together and co-operate, this would probably lead to saving of valuable resources.
In an oligopolistic environment, competition would make more sense, since the fewer number of players would result in firms having more incentive to innovate and outdo the others.

2. If an industry is heavily influenced by patents, say the pharmaceutical industry, the importance of patents results in competition becoming the more viable option. Since a patent often comes with the benefits of being in a monopolistic environment, most firms would find it advantageous to go in for competition

3. When price becomes the key differentiator, then firms would prefer to engage in competition so as to achieve the lowest possible costs. However, when technology becomes the key variable, firms might find it better to engage in cooperation and work on the lines of technology transfer since essentially, all firms involved are grappling with the unknown .

4. Geography of the consumer segment might also affect the choice of competition versus cooperation. In India, in the automobile segment, Hero and Honda, Maruti and Suzuki entered into alliances to research and manufacture cars. However in the E.U, this is hardly the case. Government regulations can also play a major role.

These roughly , I believe are some of the important factors governing the choice between cooperation and competition.

This point of view seems well logical. Dependeing on the kind of R&D you will perfom (the spillover), the firm best option in R&D will be affected. Do I have to cooperate or not ? This aim only takes into account the spillover aspect of each situation. But other elements could also influence the R&D strategy.

First of all, if a firm is big, having a lot of different department in different locations, then even if we are in the spillover case in which R&D can be good for a lot of different firms, we can easily imagine that a such big firm will not cooperate because no matter the spillover, it will use the whole R&D inside of the company, in a lot of different intern departments. It can well be usefull for a lot of different actors, but if all actors types are in a big firm, why are you going to share the costs and then share the benefits from your innovation if you can just hold it for you (with a competitive advantage) and amortize costs by our own. So, the size of the firm, and its diversity could be a factor to be taken into account.

Another factor is also the risk of deciding investing in R&D with other fims, first thinking that everybody will enjoy the innovations coming from it but finally discover that the innovation produced can only give competitive advantage to one firm. It’s misjudging the spillover aspect of the R&D project. R&D is a flow that can go in any direction so ou don’t really know where it will lead you, and whiwh results you will finally have. If both fims have the same innovation, innovation that can only be relevant if only one have it (on a duopoly market here for example), the two innovations will annihilate. Both firms will have lost money in R&D for nothing. Only the society will be fine with that. So there is a risk (like always) and you have to take it into account

Third, this paper doesn’t speak especially on the way that you can work together. In order to develop a common R&D, you will have to work with another firm, having a different culture, maybe different incentives that could lead to problems and conflicts in the project. The cooperation requires that firms follow similar ideas. And in reality, it’s not always the case. You will need to be in a similar sector, or having similar incentives, about a similar product or complementary products. So you have to take into account that on the one hand, you avoid some costs and you share the risk, but on the other hand, you take new kinds of risks about the match between the two firms (the way each firm will influence, finance the R&D). You have to know well with which firm you will cooperate.

In conclusion, R&D cooperation could be better for firms than R&D competition but the spillover is not the only parameter to take into account. Size of the firm, stability of the spillover and incentives of the firms are some parameters that, I think, are well also relevant.

There are others factors than spillovers that can affect the choice between cooperation and competition in R&D even if it is a major factor of decision. Moreover, there are no an unconditionnal answer to the question whether a firm should compete or cooperate with others on R&D matters.
On the first hand, competition is usefull to avoid monopoly and thus to increase the innovative behaviour to be more interesting for consumer than the competion. Thanks to competition the consumer surplus is better because the firms have less power.
On the other hand thanks to cooperation there a plenty cost savings and better allocation of the expenditures in R&D. Therefore firm avoid to spend a certan amoun of money in R&D and so the price must be lower. But another view of this problem is that firm if they work hand by hand may not find it profitable to spend money in R&D. If no firm innovate, they save money but the consumer feel not better.
To conclude other influence factors is the duration of an innovative project and because of that the sequential dimension of an innovation or the pure novelty can make vary the amount of cost invested and the duration of it.

Innovations that came out of the company could be more valuable in some cases than those created inside the company. In some way it could be less risky, less expensive and it needs less effort as well. The only question is still the ideal scale of cooperation in R&D.

Performance between various R&D cooperation scenarios ranging from full cooperation, as in a cartelized research joint venture (RJV) to pure strategic R&D competition (Katz, 1986). The cartelized research joint venture is the situation where firms run one joint R&D laboratory at equal cost to each and fully share R&D results. According to my perspective and my previous studies in the field of applied economics I can say that R&D cooperation, especially cartelized RJVs yield the best performance among all the scenarios regarding to R&D propensity, consumer surplus and producer surplus as well, because under R&D competition the firms’ reaction functions may get into a ,,harmful” way.

The propensity of companies to depart from purely cooperative behavior in a particular alliance is related to the portfolio of market in which each participating firm is present, and to the degree to which these portfolios overlap. The bigger the degree of overlap that means equally the competition in the market the higher the propensity of companies to take part in a common R&D programme. The motivation to do this is billingual: two qualitatively different kinds of benefits are available for both companies: private and common benefits. Altough most companies realize benefits that are combinations of these two kinds. Private benefits are those that a firm can earn unilaterally by picking up skills from its partner and applying them to its own operations in areas unrelated to the alliance activities. Common benefits are those that accrue to each partner in an alliance from the collective application of the learning that both firms go through as a consequence of being part of the alliance. (R Amir, J Wooders, Journal of Economics, 1998)

As a conclusion I am absolutely agree with cooperation in research and develpoment, even though I think it is more efficient to cooperate with somebody who does not operate on the same market. In that case the opportunities are more and it gives open-mindedness.

As usually, it seems there is no right answer to the question of cooperate or not in terms of R&D. In their paper, Ferrari & Goethals advocate that rivality in R&D tends to spur innovation. While d’Aspremont & Jacquemin develop a reflexion based on a Nash equilibrium which discuss the behaviour of a firm according to the spillovers’ size. As presented before, following different theories, some factors could influence the choice to cooperate or not in terms of R&D and following my opinion, an interesting one could be the state of the economic environment.

As we could notified during the past economic crisis, the more the economy is slowing down, the more the competitiveness between companies in the same sector is increasing which is obvious and so lead companies into competitiveness instead of cooperation. The same as for the R&D budget, the more the uncertainty about the stability of the economy is, the thiner these budget are. And so as these budget are smaller because of smaller profit, it could lead companies to cooperate in order to reduce their costs. So what could be interesting is to make the balance between these two effects depending on the same factor which is a slowing down of the economy.

An other track to follow in order to study the factor leading to cooperation or competitiveness could also be the level of complementarity between two cooperative firms. Indeed if two firms are highly complementary, their R&D could also be complementary so the R&D result for one could benefit for the other and vice versa, so if their are not competitor but complementary it could lead to increase the cooperation for R&D between both. An other factor that could push it in the other way is the easiness to inter into the market of the other company. Indeed it could scare some companies to collaborate and share R&D each others.
It is not at all proven that these three factors will influence the choice or not and in the right way as imagine in that reflexion nevertheless it seems interesting to investigate on them.

As we can see from the text, there are some advantages and disadvantages for both R&D cooperation and R&D competition. I think that when you cooperate for research and development, you are in contact with the products, information, employees, knowledge… from the company you work with. Moreover, there are good relations between both companies in order to make such collaboration happen. Thus, working together will lead to sharing sensible information that could benefit the companies and be just on the edge of what is legal. As said in the text, there are some restrictions and both companies cannot, in any way talk about price or other market-related data. I guess that if both companies would set the same price or collude on obvious things, it will be noticed. But, the temptation is big to collaborate and try to influence other parties in order to get a win-win situation.

Looking at the previous paragraph, you could say it is better to have competitive R&D. By doing this, companies will try to outperform each other and invest a lot of money to come up with new innovations. A disadvantage for companies and society could be that a lot of resources get wasted if companies invest huge amounts of money in the same things. For that matter, cooperating for R&D would be beneficial for the companies. But, when we look at the gain for society, I am not convinced cooperating for R&D is better. Because, if companies collaborate, they might be afraid of divulging too much information to the other partnering company. They could be a bit reluctant to come up with innovative ideas and share all the discovered knowledge. Additionally, companies working together could maybe rest on their laurels because they think they are stronger together and eliminate potential competition. As such, they might invest less to innovate and this would be bad for the consumers as a whole.

On the other hand, Claude d’Aspremont and Alexis Jacquemin talk about R&D spillovers. They state that companies doing a lot of competitive R&D might divulgate information to third-parties for free, whereas they invested a lot in it. This would again be a motivator to bundle research efforts. But, if research from one company could be spread among third-parties, what would hinder information assembled from cooperative R&D from spreading too?

I thus think that R&D cooperation could be interesting if companies work together with a company that is not a direct or indirect competitor. There should also be a good trust-relation in order to foster innovation and provide the best framework for research and development. Bundling forces can also mean having different views on a problem (and from several industries), what can only be beneficial when trying to find innovations.

As a matter of conclusion, I would say R&D cooperation is beneficial for most companies if it is well-defined and there is a good trust-structure. On the other hand, I think society has more to gain with R&D competition because this will ultimately oppose one company against another. All companies will try to find innovations and as such consumers will have more choice.

Initially business cooperation, we can define as those agreements between companies to share resources, skills or activities with the aim of mutual learning and improving competitive position. The scientific and technological cooperation includes a set of activities at any level, individual, institutional or national, and through multiple modalities, involve association and collaboration to achieve common goals and mutual benefit in the field of scientific research and technology. This conceptualization of cooperation emphasizes its instrumental character to the extent that lets join forces, capabilities and funding to achieve goals and outcomes that would not be possible or would be in a larger space of time individually. One of the characteristics that define the evolution of modes of production in the last fifty years is the evolution of the way of doing research and promoting innovation.

Increased cooperation is also explained by the benefits to participants. The recognition of the synergies offered interaction and complementarity, the assessment of increasing the efficiency of the research process, translated into increased productivity, visibility and improving the quality of the process and the results, improvements in the competitive capacities of firms and the impact on the degree of internationalization. However, cooperation, as social and interactive process, has dilemmas and difficulties that arise from conflicts resulting from self-interest of the participants, the complexity of personal and institutional interactions and mainly the opportunity to see the companies to have benefits additional.

For this reason, it is important to note that the promotion of a culture of cooperation requires explicit policies. Most policies have not been aimed at encouraging cooperation, but have been directed more to promote competitiveness. Corporate competitiveness can have many benefits for end consumers, but also creates inefficiencies of all companies working in the same development, it would be best to try to make cooperation to promote innovation but that never this cooperation becomes situations collusion.

Reading through the article clearly showed that spillovers are one of the key considerations in determining the choice between R&D cooperation and competition. As explained in the paper by Clause d’Aspremont and Alexis Jacquemin, when there is a high degree of spillover, i.e private appropriability of the benefits of innovation is not entirely possible, R&D cooperation may be a better choice than R&D competition, and vice versa.

Based on my further reading of the article by Ferrari and Goethals, it appears that rivalry would be an extremely important way to encourage and spur innovation. However, it is clearly brought out in the article that it would work only when there is no ‘winner-takes-all’ policy. For example, as illustrated in the article, the Renaissance artists would compete with each other, but both would be heralded for their unique take on the project. This would spur innovation to a great extent. On the other hand, as we have already understood from earlier readings in the case of patent races etc, there would be a loss to the society if the only the winner, or the one that innovates first is given the reward. Thus this concept, described in the article using the term ‘paragone’, would be another key factor to decide between cooperation and competition.

One important factor that may work against the use of R&D cooperation may be the difficulty in agreeing and entering into cooperation agreements. Since R&D, especially in complex industries such as pharmaceutical industry etc., may go on for a long period of time, it may be extremely difficult for the firms interested in cooperation to contract on future actions. Also, the contribution of each firm in the overall process of innovation may not readily be observable, thus increasing the level of difficulty in drafting and enforcing a long term R&D cooperation contract.

Firms seeking R&D cooperation must also consider the regulatory aspects applicable. Though regulators in charge of competition policies have recently begun to encourage R&D cooperation, so long as it does not make the industry non-competitive, it may still be difficult for the firms to demonstrate the same. Also the regulators’ outlook and policies may also constantly change, thus making it difficult to predict the environment even for the near future.

Thus, these are some of the factors, other than the spillover factor, that need to be considered while making the choice between R&D cooperation and R&D competition.

Sources:
1. R&D cooperation and product market competition – Luıs M.B. Cabral
2. Using rivalry to spur innovation – Bernard T. Ferrari and Jessica Goethals
3. R&D Cooperation and Competition – Michael L. Katz and Janusz A.Ordover

I think that R&D cooperation or competition are different but are both important.
On one hand, firms can cooperate in order spend less money in the R&D costs. Indeed, the two or more firms could use their different skills and knowledge together so that they use less time and are more productive. Thanks to that, they could be complementary if they need the skills of the other firms in order to innovate. As they work together, the other firm will also have benefits through the skills or money that they could earn. It is in fact cheaper than just hiring a scientific team. Firms have so interests to cooperate. The R&D cooperation may avoid the competition between the firms involved in the agreement, but that doesn’t mean that there is no competition between other firms.
On the other hand, I think that if a duopoly remains on the market and decide to operate R&D cooperation, firms will act as a monopoly. This is bad for the consumers as they can increase their prices as they wish. However, competition between firms could be great as they want to be the first to innovate. There is a kind of run and so they are very motivated. Indeed, we can say that a level of competition is necessary in order to influence and develop new innovative ideas.
In conclusion, cooperation has a lot of benefits in order to enhance innovation. However, It is not always the best strategy either as it could be disadvantageous for the consumer. But competition too. Plus, Cooperation may then handicap the innovating capabilities of the firms. When each firm work on its own, it tries to outrun its competitor. And it is then where we could see their real skills. So I think that it is of course different, but it has to be complementary and not abusive.

At first glance, it is rational to consider that R&D cooperation leads to reduction in R&D expenditures. Indeed, the two types of cooperation agreement highlighted by d’Aspremont and Jacquemin in their paper “Cooperative and noncooperative R&D in duopoly with spillovers”, lead, from a first impression, to a reduction in R&D expenditures, because of less wasteful duplication and a reduction of the total production. However, this paper outlines the fact that an important factor in this issue are the externalities and spillovers in R&D.

I found the paper by Ferrari and Goethals highly interesting. Indeed, it developed another way to see things; look at paragone, a certain concept of rivalry. Instead of making a Manichean difference between competition and cooperation, this concept is more a comparison where “two rivals are compared and celebrated for their relative achievements”. By using this concept I am going to highlight two key factors that, in my opinion, are affecting the choice of R&D cooperation or competition.

The first factor is to me the importance of having the right attitude in rivalry, the “paragone attitude”.

This is enabled if, firstly, there is a positive attitude towards different expertise and knowledge. Indeed, collision between many different experts leads to a greater range of knowledge and a deeper analysis.

Second, the attitude towards different results and ideas is also really important. If companies are able to appreciate different point of views, learn from them and try to improve their innovation processes, cooperation is a rewarding idea. Companies should therefore not have too closed mindsets about what they are looking for, and be open for other ways to answer the problem.

Third, I think that a shared vision is really important in order to create cooperation. If there is no shared vision about the “paragone attitude”, some companies will want to go further in their research by sharing their knowledge, but others will not want to share, and will then just free-ride on others’ ideas, which is not fair.

To sum up this first argument, in my opinion, a right and adequate attitude must be found: towards collision and towards different results and ideas. Companies should not have too closed mindsets and if this vision is shared by everyone, then will R&D cooperation lead to more R&D than competition.

The second factor affecting the choice between cooperation and competition is the reward given to innovators. There shouldn’t be a “winner takes all” reward (inducement prize, patent…), because otherwise, there is no incentive to collaborate. This is also related to the concept of paragone: everyone’s work should be highly appreciated, and comparing works shouldn’t diminish one at the expense on the others. If there is a reward only for the winner, the company will obviously prefer to go for R&D competition.

As a conclusion, two key factors that are affecting the choice between R&D cooperation and competition are the attitude towards paragone (differences in expertise and results, and the importance of a vision shared by each innovators), and the reward given to them.

SOURCES:

d’Aspremont, B. and Jacquemin A. (1988) Cooperative and noncooperative R&D in duopoly with spillovers. American Economic Review, 78(5), 1133-1137.

Ferrari B. & Goethals J. Using rivalry to spur innovation. Online http://www.mckinsey.com/insights/innovation/using_rivalry_to_spur_innovation, consulted on the 17th October 2014.

With technology change accelerated, product life cycles shortened and new technology research and development complicated, an ordinary firm is difficult to achieve the goal of all innovation by their own resources.

Technology spillover effect is a kind of objective existence, more and more scholars begin to concern about whether R&D cooperation can make full use of technology spillover effect with firms involved into R&D cooperation. C.d’ Aspremont and A. Jacquemin(1988) establishes a basic framework for the problem of cooperate R&D. They examined three different strategic way in the output stage and R&D investment stage in an oligopoly market of a two stages of homogeneous products, they presented that firms’ cooperating in all stages could bring more output and R&D input than firms’ cooperating only in the stage of R&D investment. Based on the Aspremont’s research, Kamien(1992) compared the level of R&D investment in “R&D cartelization ”, “RJV competition”, ”RIV cartelization”, he found that the level of effective R&D input was higher in ”RIV cartelization” than in “R&D cartelization ” and “RJV competition”. K. Suzumura(1992) examined the positive and normative effects of cooperative R&D-whereby member firms commit themselves to the joint profit-maximizing level of R&D in a “pre-competitive stage” but remain fierce competitors in the product market. He analyzed the effect of cooperate R&D on social welfare by introducing second-best welfare function and found that cooperate R&D had a positive effect on social welfare. Cassiman and Veugeler (2002) divided spillover effect into two kinds: the incoming effect and the outgoing effect. They analyzed the relationship between firm-specific spillover and cooperation by data of Belgium manufacturing industries and concluded that incoming knowledge could promote R&D cooperation.Throughout these researches, scholars have discussed the problem of cooperate R&D investment considering technology spillover widely.

In order to gain scale economy effect, obtain complementary resources, avoid repetitive R&D input and overcome R&D costs obstacles. ,many firms choose R&D cooperation. Based on the relationship of the participants in the industry of the value chain, cooperate R&D can be divided into four types: cooperation with competitors, cooperation with suppliers or distributors, cooperation with competitors and suppliers and no cooperation. When R&D interest parties implement R&D investment, other interest parties can achieve earnings through free use of technical knowledge, and they don’t need to pay for it, this is the effect of technology spillovers, this kind of technology spillover that exists widely can act on R&D decision of firms. In general, When firm chooses no cooperation or vertical cooperation, horizontal spillovers have an ambiguous effect on R&D investments.Vertical cooperation can maximize firms’ R&D investments; When horizontal and vertical spillovers are relatively high,cooperation is the best choice.

All in all, companies should act strategically when they invest on R&D. There are many factors to decide which should be case-by-case analyzed.

The primary risk associated with any R&D project for a company (or an institute) is the uncertainty in the success of the project, there by leading to a possibility of the company suffering huge losses and potential bankruptcy. To mitigate these risks, companies prefer to collaborate to share the risks. While this is valid argument, it primarily holds for smaller firms who are at a greater risk at getting wiped out because of a potential failure of an r&d project. Larger firm have greater market power, and there is a risk for the society of a monopoly getting established if cooperation is allowed between large firms. To avoid these risks, large firms must be encouraged to rather collaborate with other organisations, not profit oriented firms, but research institutes and universities who have no intention to establish a monopoly.

R&D cooperation or competition is a tricky issue.
On the one hand, firms can have incentives to cooperate in order to split R&D costs, join two teams of scientists that complete each other by their skills or in order to be more productive in less time.
Plus, a firm cooperates with an other one because this other firm can be specialized in a specific field that is needed for the new innovation. Instead of hire a private and very costly team of scientists, firms have interests to cooperate.

On the other hand, I think that cooperation is not always the best answer. Indeed, I believe that, for example, if a duopoly remains on the market and decide to operate R&D cooperation, firms will act as a monopoly which is bad for consumers’ welfare because a monopoly can increase its prices.
I think also that cooperation between two firms is not a great idea for oligopolies with three or four firms because it reduces competition. A decrease in competition might be bad for little firms on the market and for consumers (with less competition, prices go up).

Thus, in my opinion, I think that cooperation is a good idea for small firms with little budget on R&D. In that case, firms can survive on the market, innovate better and faster in order to remain competitive faced with bigger firms. Cooperation might also be a great idea when there is a lot of firms on the market with a lot of competition.
On the contrary, cooperation should be not accepted between two large firms with very high profit and market share. Indeed, those firms have already enough money to invest in R&D for their innovation, to hire brilliant and creative scientists, and so on. Plus, if they cooperate, small firms on the same market might not compete with them and thus would be out the market.

R&D co-operation and competition are both important aspects for social welfare. While R&D co-operation might be beneficial to the firms leading to reduction in both duplication of efforts and wastage of resources and also promoting technological innovation, the same co-operation can cause issues like some firms dubiously utilizing the research of another without making any sincere efforts, formation of cartels leading to losses for the consumer.

While the issue of R&D spillover is explained in the article, other causes of R&D co-operation can be determined with simple laws of economics. Firms might be more interested in R&D co-operation (and governments willing to allow so) when they cater to the same products but different geographical markets. A firm selling a MRI machine in Japan would like to partner with one selling in Germany (provided none of them plans to sell in it’s partner market in the nearby future). Firms might also be willing to co-operate with due approvals from governments when they cater to different products that are not substitutes of one another. For e.g., a firm fertilizer manufacturing firm might be easily willing to share its advances in a manufacturing process to a biochemical firm.

Other factors might also include situations when there are two (or more) hypothesis and testing a single one requires immense use of resources, capital and time. In this case the firms might agree to work on single hypothesis and share the enormous cost of failure. This might be more relevant in pharmaceutical industry. Government incentives and regulations are also an important factor influencing the co-operation between firms. The incentives by the Turkish government led to several co-operation agreements between automotive manufacturers and their vendors.

Thus a gamut of factors define the level of co-operation between various firms. While these always benefit the firms (sometimes all and sometimes a few), care should be taken to introduce regulations where these become beneficial to the society too and the firms don’t profit at the expense of the consumer by prevention of competition.

Firms conduct R&D because it can generate the knowledge to produce new products or to produce existing products at lower cost; firms can use the knowledge directly or they can sell it for others to use in production. In recent years, partly because of the rising concern over national competitiveness, the effectiveness of market forces in spurring private firms to conduct R&D has been questioned. Empirical studies have found that the social benefit from R&D could be greater than the benefit available to the innovator .[1] Bernstein and Nadiri, for example estimate that the social rates of return to R&D investment in both the chemical products and nonelectrical machinery industries were roughly double the corresponding private rates of return in 1981.

At a fundamental level, the gap between social and private incentives arises because an individual profit-maximizing firm ignores the effects that its actions have on the welfare of consumers and on the profits of other firms. Hence, to the extent that private R&D activities raise consumer surplus or generate positive externalities that accrue to other firms, the incentive to conduct private R&D is too low. Of course, to the extent that the externalities associated with R&D are negative.
A variety of economic and political forces can produce a spread between private and social incentives to conduct R&D is too low. Of course, to the extent that the externalities associated with R&D are negative, the private incentive is too high. A variety of economic and political forces can produce a spread between private and social incentives to conduct R&D. Technological « spillovers » are one source of divergence : if one firm can employ the research done by another firm without purchasing the right to do so, then the private investment incentive tends to be too low because the firm making the investment decision does not count the spillover as a benefit. Some other sources of divergence could be that the production of new or cheaper products frequently depends on access to complementary technologies and products or even on government policies.

[1] Bernstein and Nadiri (1988, p.433)
http://www.kof.ethz.ch/en/publications/p/kof-working-papers/275/

Before launching a product on the market, firms have to develop the product. But the way of developing a product for a firm is like the way of selling the product: the firm can compete with the others or cooperate. According to Claude d’Aspremont and Alexis Jacquemin, firms compete or cooperate while the spillovers are small or large respectively.
But the choice between competition and cooperation depends on more factors.
To begin, I will quickly explain why this choice is important. Then, I will give the advantage of the R&D competition and the R&D cooperation. To finish, a short conclusion to remain that the decision depends on other things than spillovers.

To begin, let’s remain that a firm decides to invest in something if expected revenues are larger than fixed cost. Revenues are (1) hard to appropriate (risk of underproduction, positive externalities for other firms, etc…) and (2) uncertain (due to the market, the human factor, etc…) while (3) fixed cost is a large initial investment. To help firms to invest, there are several solutions: subsidies, tax deduction, venture capital, routinization, secret, lead time, intellectual property right, etc… But what about the knowledge?
If firms decide to cooperate, the revenue can rise due to synergies but also decrease due to division. About risks and costs, respectively they are shared and there is an opportunity to earn more money due to scale effects.

So why sometimes, firms choose to compete if risks and costs are shared?
Are spillovers the only factor which decide if firm competes or cooperate?

On one hand, a firm can decide to compete in R&D if the degree of competition is high or if the product life cycle is low (in order to maintain each market share). It is the case for the mobiles-phones sector or the software sector; each wants to beat rivals and implement news apps in order to win market share. On the other hand, a firm can decide to cooperate in R&D if the product life cycle is long or when the risk’s level is high. It is the case for the automobile (Example: VW and China’s FAW: http://www.autonews.com/article/20141010/COPY01/310109949/volkswagen-deepens-r&d-cooperation-with-chinas-faw) and aviation sector.
On the other hand, the choice to compete or not also depends on the size of the company. Indeed, because large companies have sufficient funds, the necessary infrastructures and the expertise, they are more suitable to compete than small companies which make more benefits by cooperating, due to the outweigh costs, the sharing risk, the pool knowledge, and so will gain market share rapidly.
Moreover, the choice can also depends on the position of the firm; if the firm is the followers, in order to escape from its non-profitable market position it will more easily cooperate. Otherwise, if the firm is the market leader, it will compete to decrease the risk of losing its dominant market position.
In addition, the distance between companies, not only the geographical location but also the business activity or the cultural background can decrease the interest to cooperate due to less benefits.
In conclusion, R&D competition or cooperation doesn’t depends only on the spillovers size, there are many factors that firms have to take into account to choose the most strategically way; the degree of competition, the size of the company, the market position of the firm, the distance between firms which want to cooperate, etc… and to find the good strategy, firm also have to compare the advantages of both.
For example, a start-up, by cooperating, can split the costs of R&D and will earn more due to the elimination of the duplication of R&D efforts (the firm doesn’t need 2 workers since only 1 is needed). Furthermore, the cooperation will also enhance the quality of the innovative output because each firm concerned is focused on its core strengths.
(Example :http://www.irishtimes.com/business/sectors/health-pharma/french-co-op-takes-50-stake-in-irish-r-d-company-1.2000962 : InVivo decides to cooperate: ““It will strengthen our engagement with our customers, the InVivo cooperative members, and is a major endorsement of Life Scientific’s continued capacity to innovate on a global scale” to strength their engagement with their customers (and catch more market share) and to innovate on a global scale (enhance the quality of the innovative output))

Otherwise, a firm can choose to compete in R&D in order to, for example, avoid costs of R&D cooperation like the threat of collusive agreements, secret information, loss of control/ownership, etc… and by choosing an R&D competition strategy, it will enhanced a diversity of the innovative output and stimulate innovation thanks to patent races.

Besides the factor of large or weak spillovers, Nisvan Erkal and Daniel Piccinin in Cooperative R&D under Uncertainty with Free Entry found other factors impacting the decision of cooperation or competition. They looked at the effect of free entry in oligopoly market and differentiated three cases: R&D cartels, RJV cartels (Research Joint Venture) and R&D competition.

The consequences of free entry in oligopoly market are the following. First, during the R&D process, cooperative venture faces outsider participant competition which is not the case in duopoly for example. Secondly, after R&D process, if the results are kept by a few firms, they have a competitive advantage but on the contrary if some spillovers appear, new firms enter the market and in this case, new implications have to be analyzed.

The conclusions of the paper for each type of cooperation compared with competition can be summarized in two main points: the profitability for the firms and the welfare analysis. What is concerning profitability, their research brought the result that R&D cartels are never profitable which is quite contradictory with traditional researches. The justification is that due to free-rider effect, a firm in a R&D cartel earns less than an outsider firm (under the assumption of free-entry). About the case of RJV cartels, their profitability is depending on the size of the cartel: if he is sufficiently small, their individual investment is higher than for R&D competition and their profits too thanks to the internalization of positive externalities from sharing their research outcomes. The results are inverted with big RJV cartels.
To go ahead with the effect of RJV cartels on consumers’ welfare, Nisvan Erkal and Daniel Piccinin said that the effect change with the consumers’ preferences:

“This analysis implies that in industries with free entry, antitrust policy should pay careful attention to consumers’ preferences and may, therefore, differ between industries. This contrasts with the policy prescriptions in the literature with barriers to entry and deterministic R&D, where RJV cartels are always found to be welfare improving and, therefore, should be allowed. Miyagiwa and Ohno (2002) reach a more cautious conclusion. They find that it is both privately and socially optimal to form an RJV cartel if spillovers are fast and industry profits from sharing exceed those without sharing. In our model, however, these two conditions together are neither necessary nor sufficient for the social and private incentives for RJV cartels to coincide.”

It has to be noticed that other factors can be found such as the duration of the exclusive access with patent or/and trade secret before spillover effect for example. The rapidity of spillovers impacts the externalities for rival firms: therefore, for rapid spillovers, “the positive spillover effect outweighs the negative competitive effect” which leads to an increase of R&D investment if the firms are able to internalize the positive externalities.

As a conclusion, I would say that researches are non-exhaustive but try to set some guidance for regulatory institutions. However, it is always very difficult to take into account all potential impacts of an antitrust regulation, above all when laws change regularly.

ERKAL, N. and PICCININ, D., “Cooperative R&D under Uncertainty with Free Entry”, 2007.

From my perspective, the contribution of Bernard T. Ferrari and Jessica Goethals when considering the spillover factor as a key determinant of the choice between cooperation or competition clearly derives from the appropiability problem. Yet, the modern economic setting “solves” (at least in some sectors) the latter by the introduction of intellectual property. Therefore, one may believe that spillovers are not the main point, if we put forward the strong assumption that patents avoid the free riding issue.

Just like we saw on the links between market structure and innovation, I will outline that additional factors inducing competition versus cooperation in R&D can be seen in terms of (1) capacity and (2) incentives. First, in terms of capacity, following Schumpeter, small firms are not able to innovate provided the existence of indivisibilities and high fixed sunk costs, uncertainty and their inability to take on inherent risks and externalities. From this perspective, firm size is a relevant factor explaining the choice of cooperation. Scattered markets, with small firms, may not be willing to invest in knowledge, while cooperation would create a pool of resources that would help overcome the market failures associated to knowledge production.

Secondly, in terms of incentives, one could also think of Arrow’s replacement effect. In a quasi-monopolistic market, with a large Significant Market Power (SMP) actor, small firms may be willing to cooperate in order to gain market share. Indeed, the replacement effect applies for all the firms already in the market. However, small firms have more profit incentive and should be more willing to cooperate in order to gain a ‘common’ competitive advantage towards the SMP firm. Seemingly, a monopolistic market should lead to the same conclusion: potential entrants, having a stronger profit incentive given the existence of a replacement effect on monopolist’s profits, may put forward cooperation in order to gain entry.

Altogether, the factors (1) size and (2) profit incentives derived from entry or increased market share in highly concentrated markets can also contribute to explain the choice between cooperation and competition in innovation. Indeed, both aspects are related and the second element is actually a strategic behavior. Moreover, both concern a setting where market structure (affecting firm’s size and profit incentives) impacts on the incentives not only to innovate but also how to innovate (cooperation versus competition).

In this short comment I will describe the factors that affect the choice between competition and cooperation in R&D. I will mostly focus on the factors which, when they are present, enhance the incentives to enter in a cooperative relation in R&D with the rivals instead of a competitive relation. I will point out 4 factors that raise the level of cooperation: the nature of the cooperation agreement, the internalization of externalities, the uncertainty level and the nature of the innovation.

Before exploring the factors that affect the cooperation between rivals, it is nonetheless important to state that competition can also be an effective way of enhancing innovation. Indeed, competition can increase the motivation of being the first to discover something innovative and so increases the incentives to invest more in R&D. That being said, we can now come to the 4 factors:

1. The first one is the nature of the cooperation agreement can affect the decision. Damiano B. Silipo (2008) identified three forms of cooperation that he ranked from the weakest to the strongest in the incentives they create for R&D cooperation:

• In the case of coordination of R&D activities, firms decide the level of R&D by maximizing the joint profit. However, they conduct their R&D activities independently and remain competitors in the product market, a situation that leads to transaction costs and wasteful duplication of efforts.

• The cross-licensing agreements are contracts in which firms share research results (like knowledge production) with their partners.

• The more advanced form is a research joint venture. In this case, firms form a common lab that allows them to share information and save costs by eliminating useless duplication of R&D projects.

2. The second one is the internalization of externalities. In innovative markets, due to the fact that rivals create positive externalities since all the other competitors can freely access the results of R&D efforts, and these knowledge spillovers raise the prospect of free-riding. The result is that firms can decide to diminish their investments in R&D. By cooperating, however, firms can internalize these externalities and so, increase their incentives to innovate.

3. The third one is the uncertainty level. Kaz Miyagiwa and Yuka Ohnowe (2001) revealed the presence of uncertainty factors in the incentives to cooperate. Innovation is seen as a risky activity due to the presence of unknowns about the date of the innovation; while by cooperating firms can spread risks and use the cooperation as insurance. Damino B. Silipo (2008) also concludes that low uncertainty (i.e. high probability that the project will be successful) of innovation increases the incentive to cooperate.

4. The fourth and final one is that the firms’ decision of cooperating or competing can be influenced by the nature of innovation. Indeed, firms are likely to cooperate if it is easier to know the contribution of each R&D partners. For instance, in a cooperation on developing a new car, one can identify the contribution of each partner on the different components of the car. In the contrary, in the case of a venture for a new vaccine, it is harder to identify the contribution of each member, thus free-riding and fewer incentives to cooperate are more likely to happen.

To conclude, it seems that cooperation has more benefits than competition to enhance innovation. However, authorities should keep in mind that some kind of cooperation can lead to collusive behavior, which is detrimental for the consumer and has an ambiguous effect on the total welfare. As a consequence, anti-trust exemption for this type of cooperation should be appropriate.

Which strategy does a company or an enterprise decide to use? I think it depends on the spillover effect of research and development (R&D). If a company got positive externalities, it would decide to use competition as its strategy. Otherwise it would choose cooperation. It seems to make sense. However, cooperation is a mainstream. Many companies give up their positive externalities for finding more potential value in cooperation. Apparently, companies lose the short period of value but in the future, they might earn more value. So now, the question is changed to “how does a company find a good cooperative partner?”

For eliminating useless duplication of efforts, companies have to find partners who have different advantages from self-technology, that is to say, cooperation achieve economies of scale. Companies can reduce costs, such as unit costs, transaction costs, communication costs, etc. Meanwhile, companies can also improve the efficiency of the use of corporate resources, such as capital, technologies, human resources, etc. Those corporation could result in a synergistic effect “1+1>2”

There is a case about which Apple corporate with Beats. Apple is a well-known company which has a lot of revolutionary products. Beats is an audio company which was by Dr. Dre and Jimmy Iovine, who are famous rap singers in the USA. Nowadays, when we listen to music, we always use a cell phone and an earphone instead of Walkman, MP3 players, MD players and so on. I think their cooperation is amazing because Apple has high quality cell phones and Beats has high quality earphones. As for Apple, More music fans would have more desires on buying its devices.
As for Beats, with the help of Apple’s influence, more people would know its brand. A big company like Apple needs to find cooperative partners. What will some smaller companies do in modern competition?

In my opinion, the technologies of a product are not from a company. They are from all over the world. I don’t deny that competition can stimulate the innovation of development but I think cooperation is a more efficient way to improve efficiency. A company is not a company now. It is an element of the global factory. All companies are connected. For example, Apple and Samsung have something similar. They are also the greatest opponent of each other. The most length and the widest competition is happened by them. Appropriate competition and suitable cooperation are the prefect dynamic balance for innovation development.

Reference:
http://en.wikipedia.org/wiki/Beats_Electronics

As we know from both past classes and common knowledge, the process of R&D is characterized by pros and cons for the innovator. The spillovers that affect the innovations a competition policy can be linked to the period in which the informations about the process leak: the classic situation is the one in which competitors take advantage from your effort in R&D by simply -and costlessy- observing the final product you came out with, and try to imitate or copy some technologies or industrial processes in order to cut their costs; the other kind of spillover is the one that afflicts the firm during the process of innovation, namely at the research stage, before the final product enter the market, and also prior to the discovery of a new technology which therefore doesn’t become available to the competitors.
Despite seeming similar, studies by D’Aspremont, Jaquemin (1988) and Amir (2000) show that they lead to different result in R&D performance.
In a competition-based ambient, those spillovers represent an obstacle to innovation, since firms are not incline to spend big shares of their budget in R&D just to see direct competitors getting profit from their efforts.
A system based on cooperation, instead, helps firms avoiding these fears, and also guarantees their efforts will be worthy with other measure, like preventive agreements, in which firms clearly states the terms of the cooperation, including the shares of costs and revenues. Other factors that stand for cooperation are the avoidance of uneconomical overlapping in term of research, that inevitably comes when two subjects are competing to achieve the same goal, or positively speaking the advantages related to the exploitation of synergies between firms.
Cooperation can also represent a profitable plan for firms that are not large enough to sustain the costs of R&D individually, and that at the same time would be doomed to death if they fail to innovate: again, to share the research’ efforts bring them a possibility to gain some secure profits.

As the article points out, it’s hard to chose between competition and cooperation, since they both have their share of good and bad points.
I personally think that for better understanding it we need to look at the phenomenon with a different perspective depending on the market and the subject of our analysis. For little-sized markets, which are composed by little-sized firms, competition could represent a good path to innovation, and it’s possible not to care about the side-effects on the general welfare. On big-sized trans-national markets, on the other hand, while the fight for the bigger share of revenues still constitutes a great motivation to innovate, I think at least a minimum degree of cooperation would be advisable, in order to make the consumers better off by a significant increase of the social welfare.

http://www.krannert.purdue.edu/centers/ijio/Accepted/2099.pdf

http://www.ecostat.unical.it/silipo/Pubblicazioni/SILIPO-WEISS%202005.pdf

According to me, that text relates the same issue as the ones previously covered, asking whether or not patents/intellectual property rights do spur innovation, and what would be the optimal patent’s scope.

Indeed, as Claude d’Aspremont and Alexis Jacquemin defend, depending on the level of R&D spillovers level, Companies will prefer or not to collaboratively poor money into a common R&D program. And from my perspective, the main driver of R&D spillovers is the regulation about information protection, and especially the strength and duration of patents and other intellectual property right tools. The intuition behind is at first glance quite straightforward: If available information is significantly restricted by strong and heavy patents, companies have the incentive to collaborate in order to be part of the joint R&D process and jointly own the information under a patent’s shield. On the other hand, if those protections are not existing or easily breakable, why organisations would bother collaborate when they can easily get access to competitors’ results of R&D?

Since the design of an optimal protection tool has already been covered in previous texts, let’s think about drivers, other than R&D spillovers that would explain when a company should invest into a joint R&D program with a competitor, and when it shouldn’t.

The first idea that pops up in my mind is not the availability of information but rather the availability of ressources. Let’s assume we have a small company with a strong expertise and a lot of information into a specific area but who hasn’t enough budget to successfully run their R&D department. Such a company would be interested in partnering with a bigger company (from a financial perspective) that could bring money on the table. I think that the small company would be better paid off if she enters in a R&D partnership with a competitor, jointly owns the intellectual right and shares profits, than if she invests alone a too small amount of money that will not enable the small organisation to optimally run the R&D. Investing on your own not enough money can sometimes be a huge financial waste.

Secondly, the expected financial return of your innovation represents another explanation. If the returns are very promising, then you can fully invest your ressources into a single R&D campaign. If the expected returns are really good but not that much promising, then a company could prefer to share R&D cost with another one. It is a way of sharing risks as well.

From a competitive perspective, I would be careful when considering partnering with a competitor in the framework of a R&D program. First of all, because those R&D programs are temporary, and your partner remains your competitor. As soon as the program comes to the end, the competition starts back. Therefore, before collaborating with your competitor, it is crucial to make sure that he only has access to what you agree him to know. You would not like your competitor to use confidential information about your company that he secretly gathered as former partner against you. Keep all the company’s doors closed but the ones you need to open to make the R&D collaboration a success.

Since the partners are competitors, there is a high probability that both firms have different opinions about major aspects of running R&D. It means, that in addition to increase the number of decision makers (two companies responsible for instead of only one), those people are not likely to easily reach an agreement. A lack of convergency in your R&D strategy significantly decreases the efficiency of the ressources you jointly invest.

To conclude I would say that R&D spillovers seems to make sense as main driver for R&D collaboration. But I would say that plenty other factors such as availability of ressources, expected results of your innovation, and your Partner/competitor behaviors are also likely to explain why companies decide to invest into a joint R&D program.

As rightly pointed out, spillover effects would be a key factor in determining whether there exists cooperation or competition between two firms as far as R&D goes. In my opinion some other determinants would be:
1. Amount of R&D investment required – in case of R&D projects where capital investment required is higher there would be a greater tendency to cooperate between two firms for these projects as the costs could be shared. For an example, in the power generation sector which demands heavy investment in infrastructure there is an R&D cooperation between two leading power generation companies – Tata Power and Exxaro for new projects in South Africa.
2. Collaborative capabilities – To cooperate is something not inherently present in the DNA of every firm. Even though industry dynamics indicate the requirement of R&D cooperation this would simply not work if firms don’t have the mindset to work in teams. Certain firms are more renowned for managing and working extremely well in such an environment. The past history of firms in forming alliances with firms would be a good indicator of the collaborative capabilities of the firms in question.
3. Behavioral uncertainty – It is very much possible that in an R&D cooperation if one of the firm feels that it has gained all it could from the project, it could break up the venture to work independently. This would certainly hurt the interests of the other partners in the R&D cooperation. In case behavioral uncertainty would be low there would be a greater tendency for firms to cooperate. Long gestation periods for projects would lead to low behavioral uncertainty among partners and a better case for R&D cooperation.
4. Knowledge Dispersion – If the knowledge required for an R&D breakthrough is dispersed among several firms i.e. no firm has access to all the specialized knowledge required then it would be a better idea for firms to work in a cooperative environment. On the other hand if knowledge dispersion is lower, in that case firms would tend to compete.

To induce innovation and therefore, improve social welfare and technology knowledge, firms needs to invest in R&D.
However, there are two strategies to take into account to optimize this investment: or they could lean into competitive R&D, or they could go for the R&D cooperation.

The difference will be seen in the society benefits, and therefore we need to look first at the R&D spillovers.
As a remainder, the R&D spillovers are extent to which the R&D performed by one firm freely benefits other firms (as quoted above).
As well, we should establish the several positive and negative impact these two strategies would imply. Let’s start off with the cooperation strategy.

R&D cooperation is a good strategy because of several reasons. First of all it will imply time and money saving. Indeed, cooperation leads to sharing resources, assets, information, manpower, financial, time, technological know-how and skills, therefore less uncertainties, less preparation and so less money and time involved.

Secondly, it implies sharing ideas on development. Having more experts on a problem could lead to a better solution and therefore, will be benefic for the society.

Another point, I would like to point out is: it focuses on problem and not on competition. Again, following the previous point, allowing induce the effort in the problem and only on it, improving the work and resulting in a solution which would probably be better than if the firm would have worked alone, again implying a good for the society.

Furthermore, R&D cooperation will help small firm or new started to share their visions and ideas. As for example, imagine a start-up has a brilliant innovative idea but due to lack of funding, persuasion and size, the industry sector wouldn’t hear any of it, this would imply a loss for society.

Lastly, regarding the spillovers it would bring, it would help numerous of other firms and share brilliant discovery to the society, putting the firm into a customer/society oriented strategy. Which, indirectly will lead to draw attention to the sector and induce more innovation, research and discovery in the sector.

However, R&D cooperation has some drawbacks, if there’s a presence of collusion, it will decrease the market competition reducing motivation since market will appear less attractive.
These collusions could has well put a high price on their products or service which will harm society. It is a risk to take.
Lastly, in the very low probability of occurring, if there’s a disagreement between the firms in the collusion, it could lead to litigation cost and waste of time.

However, the second strategy, R&D competition could be considered as a good strategy. It can increase the motivation to innovate, and lead to social welfare. However, drawbacks are to be listed as well.
No spillovers so no technology sharing and that is a loss in the industry and the social welfare.

Without mentioning all the opposite benefits of the R&D cooperation, that is: sharing resource, cut cost and time saving.

In my opinion, I think we should induce R&D cooperation is better because there are more argument in favour, which implies a social welfare and increase knowledge about all new technologies.
Considering the balance in terms of benefit and drawback in the two strategies, the R&D cooperation seems as the best approach to induce innovation.

In conclusion, as mention above by Mr. Belleflame, in economic phenomena, there is no clear-cut answer. But good cooperation seems like a promising approach. However, we need to keep an eye on the firms and the rules to prevent from the negative impact it could involve.

R&D cooperation is a great way for firms to work together on development and research. It could help avoid duplication of effort and reduce the costs and risks involved for all the organisations involved. There would be many firms with insufficient resources in terms of manpower, money, time, brainpower etc. to carry out research independently and successfully. In such cases, it is beneficial to combine resources and share the benefits.

This could be harmful if collusion takes place through cooperation. If too many firms work together, this decreases competition in the market. This may have the counter effect of increasing the time and decreasing the motivation for the innovation in the first place, since the potential competitive advantage is comparatively less attractive. Also if firms decide to set high product prices through collusion, customers would be negatively affected.

Another disadvantage of R&D cooperation is the potential for disagreements between firms in the future resulting in unnecessary litigation costs. The development plan along with the sharing of benefits and the commitment of resources from both firms should be made clear. There would also be less flexibility for the individual firms to change plans due to unforeseen circumstances during the cooperation phase.

It seems to me that R&D cooperation is an effective measure for projects that involve high risk and are long term and which would likely not take off unless the risks and costs are spread out. For projects that are comparatively more short term and less expensive, individual efforts by firms may be more beneficial.

Firms use R&D in order to generate skills to create new products at lower cost. But why some companies will invest in R&D if it’s possible to learn from the other firm’s knowledge ?

First of all, I think the cooperation is a good way to increase the social welfare and increase our knowledge about all new technologies. Why ? Because small companies could have a lot of great ideas and own great experts. But because of their too small budget, they can’t access to all expensive technologies. Moreover, if companies from different sectors collaborate, it could have a positive effect which could generate new ideas from two parts. It becomes also easier to new start-ups to come on the market with this sharing cost of R&D.

However, if companies working together, the competition decreases and the motivation to find new technologies could be reducing too. I think it’s logical. When you work alone and for your own interests, it will be more exciting and motivating to reach your own goal. If you share this goal with an other, each stakeholder of a project could relies on the knowledge of the others and you stop to stimulate or decrease your artistic innovation.

To conclude, I think it could have a positive impact sharing cost of R&D but it’s not a good idea to share it between too many companies. Moreover, to keep this positive way of work, the new group of work has to develop rules in order to have the best efficiency in their research.

Source :
http://www.brookings.edu/~/media/projects/bpea/1990%20micro/1990_bpeamicro_katz.pdf

I agree with most of the comments on the point that there’s no single unambiguous answer to whether a firm should compete or cooperate with other firms on R&D. One dimension on which firms weigh their decision to compete or cooperate with other firms is gestation period of particular R&D projects. Cooperation undoubtedly leads to lower overall investment because of sharing of resources and expertise. Say, for example, if Volkswagen and Porsche engineering jointly develop a piston head to be used in their respective upcoming models, the overall cost for development will be much lower due to common mold, manufacturing line, testing etc. thereby avoiding redundant duplication of effort and exploiting economies of scale. However, such cooperation on short term projects usually results in reduced flexibility which might affect the market position of the cooperating firms. The various steps in development will have to be designed to synchronize with the development phases of the respective models of the two manufacturers. Also, the engineers won’t have complete flexibility on design. In this light, cooperation on short term R&D projects may not be preferred by many firms.
Long term projects e.g. developing a hybrid car model could, however, benefit from shared resources and expertise resulting from cooperation with other firms on R&D. Such projects are not usually hard pressed for time. Hence, reduced flexibility is not much of a hindrance. Cooperation would result in lower investment as well as shorter development time for both firms.

I think a certain level of cooperation is needed in order to improve global R&D. This cooperation can be done between firms who are not on the same market, but which could benefit each other of the pooling of resources. One example could be a nutritional firm which will joint with a biomedical one. Both of them need laboratory with quite similar equipments. It’s a pity to see that many firms build huge complexes of R&D while their neighbours have almost the same. In mechanics it’s the same, some testers or other equipments could be shared by several companies.

In addition to the financial benefit, working together on R&D allows more connexions between team members. If the lunch roam, the rest roam or other extra facilities are shared by the companies, their employees can there discuss with employees of other firms and so they can give/share some advices or ideas.

We could so create some spaces, like incubators for SME’s, where several research centres will be there and the facilities roams will be shared by all of them. It looks like the method of Decathlon (Oxylane Group) which puts researchers of all its own brands in the same R&D centre. I know it’s easier for a firm to do that, there is no problem of competition, but the idea to gather researchers is there (indeed designing a new swimming trunks or a new tent is far to be the same, but some synergies can be created!). That’s also in order to benefit from this synergy that they develop their products in many sectors of the sport. They use their global expertise to develop new products in each brand.

I think universities could be one of the gathering places. They already have a lot of connexions with many companies, they already have some equipment (and it allows them to have more thanks to the investment of the companies), etc. There the atmosphere is already based on research without a lot of competition, there are centres of excellences, etc. Many ingredients are there to become a good partnership!

First we could think that cooperation between firms always is the best way to innovate. For the customers I think that it’s true because the quality of the products will certainly be better with cooperation between the R&D department because they work together and therefore share their knowledge, their experience. But i don’t know if cooperation for the companies is always the best solutions.

For example if a company want to develop an innovative product, technology it’s maybe not a good solution to develop it with an other company. If every company use the innovation, there is no more a competitive advantage for you and it’s more interessant to try to develop your project alone and hope to maybe get a patent.

But an advantage of the cooperation is that you reduce the potential loss. Some companies may not be much money to devote to their R&D sector and so cooperation could be an opporturnity to develop new product.

When you want to cooperate with an other company you enough have to find the company. Thus a company with the same goals and that accept your conditions of the contract. I think that find a company like that and that is not your direct conccurent must be very difficult. Further there is somethimes too much competition between companies to work together on the same project. For example I don’t know that Coca-Cola and Pepsi would work together. The rivality between companies like this is too important and they prefer certainly work alone in their R&D department.

Globalization has presented immense challenges for producers producers in countless industries. Competition grew very rapidly, prices were driven down and technologies have evolved faster and became more complex. Products now have a shorter lifespan in the markets and developing innovations has become more costly. In order to survive in the industry, a producer has no other choice than to develop new products in a faster and more cost effective way.

However, due to the increasing complexity of products, it is not realistic to expect one producer to develop a new product from the ground up entirely on its own. Since spillovers and the risk (in regards to how the innovation will perform) are very likely to be high, a producer will prefer to develop a new product based on existing technologies, instead of developing its own. Even a huge company like Apple, which holds almost $150 billion in cash [1], uses technologies developed by other firms and even by one of its direct competitors [2]. This is also routinely done in the automobile industry. Industry standards made it possible to cut costs. Suppliers like Bosch are able to produce car components and sell them to multiple car manufacturers. These are usually parts that consumers will not regard as being determining factors when purchasing a car, e.g. wind screen wipers, tires or oil filters.

This R&D cooperation in the automotive industry can however go much further. A few years ago, Toyota and Subaru agreed to jointly develop an affordable sportscar. The result of this partnership was a model named Toyota 86, Toyota GT86, Subaru BRZ and Scion FR-S. The car is sold under three different brands (Toyota, Subaru and Scion – a Toyota sub-brand), each having higher recognition in different geographical markets. The three brands sell a quasi identical car that is assembled in the same factory in Japan. The idea was for Toyota and Subaru to enter (re-enter in the case of Toyota) a market segment. They weren’t willing to bear the R&D costs individually so a partnership made it possible for consumers to have a critically acclaimed alternative when looking for a new car.

References:
[1] http://blogs.wsj.com/cfo/2013/10/01/apple-now-holds-10-of-all-corporate-cash-moodys/
[2] http://appleinsider.com/articles/13/09/20/samsung-confirmed-to-be-manufacturer-of-apples-new-a7-chip-in-iphone-5s

I think that it depends of each case but both competition and cooperation can be good for firms or for the society. They both can be the best option in different situations.

In modern economies, industrial competitiveness is increasingly determined by the ability to create new or improved products or services. Research and development can therefore form an important part of any company’s business strategy, helping it to bring new products to market. Cooperation in the field of R&D is often essential to innovation, particularly in high technology sectors or pharmaceutical sector where the technical and financial risks are high.

Furthermore, a company may decide to carry out all of its R&D work by itself or it may prefer to collaborate with other companies in their R&D efforts. I think that R&D agreements may vary in form and scope. Under a joint R&D agreement, two or more parties collaborate with one another to carry out joint research work with a view to developing new products or processes more rapidly. Sometimes parties to joint R&D limit their collaboration to the “precommercialisation” (just the R&D stage). In other cases, however, parties extend their collaboration to the way in which they commercialize or exploit the results of the R&D. However, under certain circumstances, R&D agreements may cause competition problems. For example, where the parties to the agreement agree to fix prices or output, or to share markets. Problems may also be created if the cooperation under the agreement enables the parties to maintain, gain or increase market power.

Therefore, as said in the article, the degree of R&D spillovers seems to be the key factor : “When firms behave strategically, R&D cooperation leads to more R&D than R&D competition when spillovers are large but to less R&D when spillovers are small.” Indeed, the degree of R&D spillovers change the firm’s incentives on the way of cooperation or competition. Moreover, I think that others factors like the risk or the market might be very important in the decision to cooperate or not.

In the first view, I am in balance between the cooperation and the competition in the R&D because it is not an issue that has only one solution. I mean it’s in case-by-case. But when I look at more closely, I see that it would be better for the whole society if firms cooperate.
I think that, in competition or in cooperation, the time to find out an innovation would generally be the same. Indeed, when firms are not cooperating they all spend a lot in R&D expenditure, time, etc… But when firms cooperate, they can better allocate the R&D Process and resources which is not wasteful. It is also the same for all what is about the time during which firms invest in R&D. Because when they compete, they would like to be the first to file and so the first to innovate. It means that they will spend a lot of R&D in such a way to be the first to find out. And more there are firms, earlier it is likely to happen. But with regard to the cooperating firms, the time would also be shortcut because if they cooperate intelligently they will be able to minimize the time during which firms invest. But without wasting of time and money! That is all the difference between cooperating firms and competing firms.

Finally, firms do not decide whether to invest or not just according to the time and financial aspect. It depends on the structure of the market. I mean that if there is a monopolistic firm it has no incentive to collaborate because they will have to share the benefits they have done thanks to the innovation and thus it wouldn’t be the leader of the market anymore. The monopolistic firm would lose more money by this way than by investing alone. But if the structure of the market is the perfect competition, it would be better for all the firms to collaborate so that they could better allocate and manage the R&D expenditures. Moreover according to the Pareto theory of the “comparative advantage” the better allocation is a way to have more efficiency.

To conclude, I think the governments should establish some rules that give incentives to the firms to collaborate between them, because it is better for the consumer (innovation more rapidly discovered, etc…) and the society as a whole.

The question of competition or cooperation really depends on the kind of industry involved and especially on the point of view of the actors. Surely, a firm is looking for a unique competitive advantage amongst the others in order to secure more market shares. But the unique nature of an advantage is difficult to complete and to be sure that it could not be copied, very expansive. To achieve these goals, the innovation cannot be “unfinished”… It must be almost perfect! Competition seems to be better for the quality of a technology and the profits of his inventors.

On the other side, government and consumers want to have the best service and the best products for them. In that case, it is much efficient to work in groups. “Two brains are much valuable than one” and firms move forward together sharing costs and profits of an innovation. This way could enhance the whole economy of a sector and bring all the industry to the next level.

It is a matter of equilibrium between specific factors of an innovation. Is it unique? Is it something that makes the difference for a firm? That is what the competition way looks for. The danger of this way is to create a monopoly. Or, with the cooperation: Is there enough incentive to take part in an innovation? Will it serve me as it serves the others? And the danger is clearly that firms can’t find any motivation and then the sector does not evolve anymore.

The good way appears to be between competition and cooperation. Between take personal profits of an innovating work and the evolution of an industry by sharing a new technology.

Firstly, when I read this sentence, I think it is natural R&D cooperation is more effectively than competitive R&D because if firms cooperate with each other for R&D, they can get more money and more diversity of point of view for the approach for innovation. So, I want to think and write here why they choose competitive R&D instead. I come up with some reasons for this.

First, one of the reasons is “the value of the company”. Now patent systems defend innovations from copying and also defend the profits of the innovations. So, in this time I want to talk about other aspect of the innovation than profit. That is “value”. Innovations make firms value much better. We can also say that customers come to have very good impression to a company which create innovations. This is bug factor, I think. This is because what retain a company is ultimately its customer and if the customers have good impression to a firm and use it more often, the firm will make big products. I think companies want to monopolize the good impression deriving from innovation. So, they choose competitive R&D, not R&D cooperation.

Second, that is about technique. I think R&D cooperation has the possibility of leak firms’ techniques. Of course, in R&D cooperation the firms won’t use the technique which they want to monopolize. But, some techniques have the possibility to make other companies invent new innovation. So, I think the monopolization of technique prevent firms from choosing R&D cooperation.

In my point of view, it’s too simplistic to summarize the choice of cooperation or competition to the spillovers. First, because when spillovers are big, companies prefer not to share the cake and they begin a run for patent like we saw last week. Then, cause the context of innovations is more complex than R&D and spillovers.

To begin, before the spillovers, it’s important to notice the costs. There is a risk in all research that we don’t find anything or that the spillovers aren’t the ones expected. So the choice of cooperation or competition will also depend of the perceived risk from companies. More the perceived risks more the cooperation probability.

Then the history of the market influences that choice too. For example, when Nintendo decided to invest in R&D about Wii and movement recognition, they could have cooperate with Sony but I think the competition between those companies was already too strong to even think about cooperation in R&D. The history between some companies makes cooperation almost impossible now. The culture of them is also a factor. The actual most relevant example is Phoneblock. The concept is to create a phone for which all companies work together. (https://phonebloks.com) This phone will be made of pieces from different firms. One of the biggest challenges for that, beside the technological aspect, is too make them cooperate.

Finally, the risk of perceiving the cooperation as collusion is also a factor that influences that choice. Indeed, when tow companies agree together on an innovation and his spillovers, it’s easy to fall in a collusion case which is illegal.

Personally, I really liked the theory proposed by Mr. Ferrari and Ms. Jessica Goethals. But, like always in economy, the answer is more complex.

I think the approach to the trade-off between competition and cooperation must always vary based on the characteristics of the firms competing or collaborating and to the characteristics of the market object of observation.

To apply the method proposed by Mr. Ferrari, the firms need a lot of investments in R&D, because you need to create different R&D teams in the same firms, and then let them compete with regular comparison between the result of the group.

The requirements of competing teams, which must come from different divisions, and which have to take different approaches to the same problem, cannot always be accomplished. First of all, it’s not always possible to obtain different approaches to the same problem. It can be true for art, design, even for chemistry, but for example in construction engineering there are some “fixed path” that cannot be bypassed without breakthrough in other science, in the example chemistry of material.

Another important cost of this type of competition is the cost in management control. Like the authors point out, a poorly managed competition can grow out of scale, becoming dangerous.

Another practical issue, which can be translated in increased cost, is the change in the culture of the company, which must become a “culture of cooperation and collective achievement”, while normally in R&D people search for personal benefits. Even if the company succeeds in implanting the new culture, the attention must be constantly high to avoid the rising of opportunistic behaviors. In the end, creating a culture of innovation based on cooperation and collective achievement is easier said than done and is not always possible in reality.

It’s true that, with this strategy, it is possible to focus on the discovery of a specific new innovation, raising the probability to find a solution, but focusing too much on a single direction narrows the path of the research. This can be translated in opportunity costs deriving from choosing to focus the work of different teams only on one subject rather than working on different ones.

Another problem, last but not least, is that the discovery of a new innovation is based on a given. The nature of the “paragone” is asking to two or more artist to compete in the creation of a statue or of a painting. This assumption give the solution to the problem as sure. If you ask the artist to do different painting in a given time, they will do them, obtaining different result which you can compare. In the R&D field you are not always sure to have results to compare with the others on a given date, even if you have obtained all the other conditions before explained.

In conclusion, I think that before choosing which kind of approach we should use to solve this trade off, we should see what lies behind the surface and study the entire structure of the companies and markets we are considering. I think this is the only way to make the right decision, or at least a logic one, in this complex trade-off.

Generally speaking, if spillovers are large enough, R&D cooperation have a positive effect on R&D activities. If spillovers are small, R&D competition have a positive effect. So if we talk about R&D competition or cooperation, we should pay attention to the circumstances (i.e.,target market, market structure) and the degree of R&D spillovers.

First of all, R&D cooperation means two or more enterprises through the contract form technology alliance and get all the required knowledge.Why firms want to R&D cooperation? First ,they want to gain more market share and widen scope of the market. Second, they can reduce the burden of the R&D cost of each firms, sharing cost with other firms.As a result ,cooperation leads to larger investments in R&D and benefits society and consumers. But all of this happen under environment that spillovers are large enough.

Secondly, if spillovers are really small, every firms just keep secret, then they have strong incentive to invest R&D and compete with each other through the investment of R&D. If a firm get a innovation from investing R&D, then he will get monopoly profits and occupy a strong market power. But only one firm will get innovation through R&D competition, it lead to waste of R&D cost of other firms. So it is not very good for society and consumers, but good for inventors and firms.

I believe this is a very interesting question, to which there isn’t an obvious answer. There are a lot of factors to consider when it comes about choosing between competition or cooperation in R&D matters. First of all we have to put things in context according to the market that we are talking about. Considering only the possibility of cooperations between two companies of the same market/industry, for example if we consider the smartphone industry (more in terms of software and functionality, not the physical aspect of the devices) the idea of cooperation seems completely misplaced, since Apple and Samsung (for example) wouldn’t both benefitiate if they cooperated because their products would offer the same level of technology, losing their differentiating aspect which gives them the edge one over the other. Even society benefits from a competition in R&D between these firms since all the products offer some different characteristics, and the consumer can choose the one that pleases him the most.
On the other hand if we think about another kind of business where two companies can both get benefits from the same innovation, they have an incentive to cooperate since they can split costs and increase the chance of success. We can think of for example two companies who seek a less expensive and more ecological way of treat their leftovers, if we consider that their core activity isn’t largely affected by their expenses in this area they will both gain from this partnership and so will the environment, and consequently, society.
Another important factor to consider is the dimension of the innovation and the associated costs, since it’s more likely that companies are more willing to colaborate when the costs are higher, as a way to split the risk.

As mentioned in Belleflamme’s article above, one of the key variables affecting the choice between R&D cooperation or competition is the level of spillovers. There are several other factors that must also be taken into account such as the competition context, market power and firm size, the cost of innovation and even the level of subsidies. These are the first factors that spring to mind and that could influence the choice between cooperation or competition but are by no means the only ones.

Firms will behave differently if they compete in terms of quantity or in terms of price. Under quantity competition, if spillovers are large then an increase in the R&D of a firm will have a negative effect on its profits whereas such an increase will have a positive effect on its profits if spillovers are small. On the other hand, if firms are competing in terms of price then the effect of an increase in R&D will always be negative (1).
As for market power, firms will behave differently if they are a leader or a small player on the market. A market leader with great resources will be reluctant to form a cooperation with a smaller player with smaller resources as it will in all likelihood have little to gain from such a cooperation (2). The argument is similar in regards to the cost of innovation; small firms with limited spending power will struggle if the cost of innovation is high and will therefore look to enter a R&D partnership so as not to fall behind competitors and to alleviate financial difficulties. The powerful firms with important financial clout will be able to go alone and invest in R&D even if the cost of it is high therefore excluding the need to form a partnership.
The state or local governments can also play an important role in deciding whether partnerships will be formed or not; if they set a high level of subsidies to cover R&D costs then firms won’t necessarily look to cooperate as quickly than in the case of no subsidies being distributed.

So the context of competition, market power and the cost of innovation are the three main factors that stand out in my eyes on top of the level of spillovers. Another factor could be the level of potential synergies must also be a contributing factor; if firms had the opportunity to create important synergies by cooperating in the sense that they would complement each other in regards to their respective capabilities and capacities then they will be more inclined to develop a partnership (3).

(1) P.BELLEFLAMME, 2010, p.495
(2) C.FRANCO & M.GUSSONI, 2010,p.8
(3) H.DAWID & P.M.KORT & M.KOPEL, 2013, p.16

I think that the number of firms on the market can influence the choice between cooperation and competition in R&D. Let’s consider a competitive market (lot of firms) and a duopoly.

Firms in a competitive market have fewer resources than firms in a duopoly, which may encourage them to invest cooperatively in R&D. They could indeed share their resources (financial as well as material) and also their know-how. This could allow them to develop an invention that couldn’t have been developed in a situation of rivalry in R&D, which could then make all firms better off than if the invention wasn’t developed. In the duopoly case, firms don’t have the sharing of resources’ incentive because they enjoy positive profits and thus financial resources. They also have more material and intellectual resources because of their larger size.

We can here find again the debate that opposed Shumpeter and Arrow, about the most R&D conducive market structure. Shumpeter is a pro monopolies because of their capacities to innovate, while Arrow is more favorable to perfect competition because of the incentives to innovate that competitive firms have. Monopolies, or rather duopolies in this case, have the capacities to invest in R&D, which means that they may be more favorable to non cooperative R&D. Competitive firms have the incentives to innovate but not always the capacities, which means that they may be more favorable to cooperative R&D.

However, there may be more incentives to invest non cooperatively in R&D in the competitive market than in the duopoly. Indeed, there is probably more to be gained by investing non cooperatively in R&D (compared to cooperatively) when there are a lot of firms on the market because there is a possibility to considerably increase its profits, from zero (perfectly competitive case) to monopoly profits. In fact, if the innovation succeeds, the firm that has developed it could patent it and thus enjoy a temporary monopoly position. In the duopoly case, firms start with positive profits and thus have less incentive to invest non cooperatively in R&D in order to be the first to invent. The difference in profits between the initial situation (no R&D investment) and the one when firms invest non cooperatively and succeed in their innovation is greater in the competitive case than in the duopoly case. This difference in profits measures the incentive to invest non cooperatively in R&D.

Intuitively, I would say that I’m in favour of the cooperation. In order to write this comment, I have done different researches on Internet. Theoretically, it has been shown that there is always a form of cooperation that provides a greater benefit than the one of non-cooperation. But the problem with the theory is that it assumes that the companies are all non-opportunistic. Using this assumption generates two main implications. Firstly, one of the fundamental problem of the implementation of cooperation in R&D, the one of the selection of partners, is not taking in account. Secondly, the fact that a companies could make a cooperation in R&D in order to seize the R&D partners’ results while minimizing their own contribution is also not taking in account.

If we try to cope better with the reality and so, if we assume that a company can have a opportunistic way of acting, it has been shown that the trust is one of the key success of the cooperation in R&D. The emergence of this trust in the cooperation in R&D depends on the structure of the market through the level of technological externalities. More technological knowledge can be appropriated by the partner firm, the harder it is to trust each other and therefore, to support cooperation in R&D. Moreover, it is easier to stabilize the cooperation in R&D by using a joint venture in R&D. The creation of a joint venture led firms to endogenise the degree of spillovers since they partially control the transfer ot their technological knowledge. Cooperation is therefore more robust.

To sum up, I would like to add that I find very sad that only because companies can’t always trust each other, they are not able to build cooperation.

The distinction between innovation with high degree of spillover or low degree of spillover is very pertinent because this factor impact the strategy of firms on their decisions to invest or not. This allows us to make distinction between different type of innovation. Knowing if cooperation or competition is more efficient we need to distinguish different type of innovation and spillover is a good starting point.

In my opinion an other factor that could impact the argument for cooperation or competition is the cost of the innovation. Indeed, even if the spillover are large, if the profit derived by the innovation is larger than negative impact (spillover and cost) thus firm would have more incentive to innovate with competition rather than cooperation.If, at the contrary, costs are too high, cooperation would be better off competition because the cost would discourage firm’s investment or create huge investment leading to heavy losses because of duplication effort.

If the cost of R&D is too low, cooperation would lead to underinvest. Indeed firms would have lower incentive to innovate quickly because they invest together and thus they don’t pushed to find before the other. If they compete in R&D, both would find the process first. the investments would be higher and quickly than in cooperation.

To conclude, we need to take into account the size of the innovation. When it is a very big innovation, we need to cooperate to increase the opportunity to succeed. But in the case of little innovation, the competition in R&D would be more efficient.

The type of industry plays probably a major role in the decision and the amount of R&D.

If competition is very high, many firms will probably try to free ride the investment and the innovation of the first company to invest. The question will then be: is there any first-mover advantage? Of course, it depends of the number of firms on the market, the complexity of the innovation, etc.

Such an industry could be the smartphone industry. So far, Apple has made major investments and innovations despite a huge competition. However, we can also say that it created a new market with the iPhone. In the end, lots of firms developed their own smartphones with or without success. But thanks to its innovations, Apple enjoyed and is still enjoying a first-mover advantage as it has created a very good reputation and even a real fan-community.

Of course, some competitors like Samsung consolidated an important position in the market despite the fact it has not invented nor innovated something that made a revolution in the electronics industry. We can also point out the fact the Korean company has broken some patents…

This example shows probably that, like the author says, there is no clear-cut economic answer. For such risky investments, it might be interesting to open your doors to other firms. Nevertheless, Apple has always succeeded to perform well by staying very secret, discrete and even closed to other companies.

I think that R&D cooperation should depend on the sector in which it happens. For instance, cooperation in the pharmaceutical sector is interesting because who more R&D is spent in it, who better the results could be. The consequence of such an action could be seen in long term by a reduction of incurable diseases or at least, shorten the period of sickness. Actually we could even go further by assuming the less sick people the higher the economic productivity (but it is perhaps too much of speculation).Although there is a real social welfare at stake, I’m aware that cooperation in this particular example is hard because it’s the target of a lot patents.

On the contrary, competition should be kept in sector where the demand is completely subjective. For instance, there are benefits for customers to maintain competition in the mobile phone sector. A lambda person might be interest in a high resolution camera while an alpha person might be looking for a high autonomy battery. Those two characteristics required different R&D developments. But in case of cooperation, I fear a lack of diversity in the R&D development. Two companies working together, in order to minimize the risks, could focus on a technology that may be hype for a period but isn’t really relevant.

I agree with the theory of Claude d’Aspremont and Alexis Jacquemin that when knowledge spillovers are high cooperative R&D will lead to higher R&D investment than competitive R&D.
According to me, besides spillovers there is another factor that affect the R&D investment in each of the mentioned scenarios. It is the type of industry. The industry where competition is high and firms come up with the new products very often usually favors competitive R&D. So, industries like mobile, software and consumer electronics where there is cut throat competition and the product life cycle is low firms try to invest more and more in R&D to maintain their market share. At the same time, industries where product life cycle is high such as automotive, capital goods and aviation we see a lot of firms going for cooperative R&D to minimize risks due to the large investments.
I personally believe cooperative R&D is better than competitive R&D as far as the overall welfare of the society is concerned. In competitive R&D there might be a possibility that two firms end up developing the same technology. This is not the efficient use of resources if we see the market as one ecosystem. Such redundancy is avoided in cooperative R&D. Further, the results of cooperative R&D may be better as the firms is cooperation work in the areas of their core strength. For example, in semiconductors industry two firms cooperate to produce a new technology, the firm which is good in analog can work in that field while the one which is good in digital can work in the digital domain. Thus, two firms working in domains of their core competence strive for the common goal. Clearly, cooperative R&D leads to better and effective utilization of resources.

I’d say that two main determinants to choose between R&D cooperation and competition are the size and the activity of the company.

On one hand, for big companies, working on innovation on their own seems appealing. First, they are likely to have enough funds and employees to work on it unlike small firms, then it could be difficult for them to give up their position in the market or share it with a competitor. In fact, I think it’s not surprising that the director of General Electric’s Global Research Group said that rivalry has made a difference in his company’s efforts to develop better aircraft engines, composite materials, and power generation equipment (1). The fear of losing their leader position might have pressured employees to find new ideas and stay ahead of their competitors. Moreover, big firms may think of R&D cooperation as a problems and misunderstandings thing if it’s not well established in the beginning. It can be in fact hard to determine how the future profits will be distributed, as well as determining who has which rights on the product. What if one company brought more efforts in the innovation process…?

One the other hand, R&D cooperation may be better for small companies which have not a lot to invest in R&D and/or not enough innovators working for the company. In this case, its advantages overcome its drawbacks. In fact, not only does it mean sharing knowledge and more funds invested in one area, but it also enables small companies to carry less risk and maybe obtain notoriety if the goal is realized. At the end, innovations can be created more easily, and if R&D costs are shared between several companies, the final price of the innovation may even be more affordable than if it would have been if the product was created by only one company.

To sum up, as said in the article above, there is no clear answer at the question what is best between R&D cooperation and competition. To my mind, it depends on the size and the activity of the company. As regard to the size, it’s understandable that a big company is reluctant to share its knowledge and finally an innovation and the profit that follows with a competitor if it could have created it on its own. On the contrary, I think that R&D cooperation is a very good thing for startups; small and new companies that need to be pushed and helped to unlock their potential.

Then, the fact of choosing between R&D cooperation and competition also depends on the fields. For example, in the technological industry; competition is needed in order to stay on top, leader in the innovation race, whereas in the pharmaceutical field, mentioned last week, what matters the most is the well-being of the population and as it requires a lot of funds to innovate too, cooperation in R&D appears to be a good way to move fast in the field.

(1) B. T. Ferrari and J. Goethals (2010), Using rivalry to spur innovation, Mckinsey&Compagny.

First when we speak about cooperation between two firms it directly make me think of two firms who are colluding. In Industrial Organization course we saw he theory of collusion and I think we can make a parallel with cooperation in R&D between two firms.
But it’s important not to forget that collusion is forbidden. Firms who take part in a collusion get a higher profit but it’s not good for the whole society. If we are in an oligopoly firms might have incentive to collude because they will have a strong market power compare to the others competitors who are staying outside the collusion but if we are in a situation of an industry with a lot of competitors firms might be willing to deviate because they will get a higher profit outside the collusion. We might think that this principle is the same with cooperation between several firms.
Second I think that cooperate in R&D is a good thing. When firms compete they both start their R&D from the beginning, it means from nothing. There are strong chances that they might have some result in common. If two firms have the same results in pointless. When they cooperate there is no problem of obtaining the same result than the competitors because you act like one and only firm.
But we have to keep in mind that competition stimulate innovation and R&D because firms wanted to be the first to find something new and to sell it in order to get a high profit.
So I think that two firms who are cooperating is not a good thing.

As I see it, the results of the paper “Cooperative and Non-cooperative R&D in Duopoly with Spillovers” make a lot of sense. The fact that there are a lot of spillovers or not will definitely influence the way companies will conduct their R&D spending strategies. This being said, we should not forget that we make a major hypothesis for this conclusion: the companies that cooperate in their R&D spending will work efficiently together. What happens if these companies are unable to work together? It may be that for the same amount of R&D spending, the results while cooperating will be smaller than the results the company might have achieved alone. The results for the society as a whole will thus also be lesser than the non-cooperative case.

What I want to say here is that companies come with their own corporate culture, values, processes and an efficient cooperation will only be reached if these factors are taken into account. Indeed, people are most of the time averse to change. By asking people of two (or more) different environments to cooperate as efficiently as they would have normally is not something as easy as it seems. Before taking the decision to cooperate with another firm, managers should first ask themselves if finding a common ground to work on is possible. Even if the probability of spillovers is high, two inadequate companies will reach lesser results. However, if managers estimate that their company might be compatible with each other, cooperation seems to be the right option. Of course, it is not good enough to evaluate the possibility of a common ground: managers should also implements things in order for the employees to develop this “common ground” in practice to work efficiently together.

To sum up, there are many factors to take into account before opting for cooperative R&D spending strategies. The one I have developed here is about the firms compatibility in terms of corporate culture and processes but many other factors will influence the way firms will cooperate: for example, if the employees of both firms don’t feel like working together, it might lead to a duplication of efforts (which is basically the same as the non-cooperative case) or unhealthy rivalry between the two “clans” to see which one will find something first. Objectives and incentives need to be aligned in both companies so that their cooperation is as efficient as possible.

In the R&D field, choosing between cooperation and competition must be studied on a case-by-case basis. On the top of spillovers, there exist a multitude of factors having an impact on this decision. Let me isolate three of them: the market structure, the strategic importance of the innovation for the organization and the infrastructure of firms.

First of all, the market structure as well as the consequences of such a decision on this structure have to be taken into account while deciding to cooperate or not. A firm that enjoys a monopoly position will have a very low incentive to share the costs of innovation with their competitors. By doing so, they would run the risk of losing their dominant position due to a commercial success of this shared innovation or due to an intern leak of their knowledge.
At the opposite, firms competing in a perfectly competitive market could have a larger incentive to cooperate in order to try to extract from this non-profitable situation. By joining forces they can succeed in creating a profitable oligopoly.

Secondly, a firm could be reluctant to share the researches about a particular project if this project is of a huge importance for them. Companies have all interest to act in a non-aggressive way with their competitors. They can show themselves in the best possible light and cooperate as far as projects of little impact are concerned but they will free ride if this project can give them a substantial competitive advantage.

Finally, a more practical factor can be put forward. The distance between firms for example. If we are talking about a worldwide competition, firms will have difficulties to act efficiently because of communication problem. Cooperation could be more sustainable if companies are organised in cluster for example, so that researchers can physically see each other.

In my opinion, there are always more in two heads than in one. Starting with this idea, I’m pro R&D cooperation.

But as it has been shown in the text, certain circumstances are needed to let the R&D cooperation the best way to spur innovation. Those circumstances are “when firms behave strategically, R&D cooperation leads to more R&D when spillovers are large but to less R&D when spillovers are small”.

As always in an economic issue, the answer varies with the market structure. But we saw in all our economics courses that states can have an impact on this structure in aim to reach the highest social welfare.

I think that it’s possible for the government to create some incentives to have a large spillover (maybe more grants for an industry where the companies implement a spillover process). Indeed, there are still some public policies concerning the R&D cooperation as the European Framework Programmes encouraging firms to pool their R&D activities (Industrial Organization: Market and Strategies. By Paul Belleflamme and Martin Peitz, p. 499).

Another reason to encourage R&D cooperative is that it doesn’t only lead to more R&D (if there are the good circumstances), it’s also a way to alleviate the three sources of market failures resulting of IP generating activities (externalities, indivisibilities and uncertainty) (Industrial Organization: Market and Strategies, P. 499).

In conclusion, I believe that we have to wait how politics can impact the market structure (particularly the spillover process) to find an answer.