Comments for Is R&D cooperation a steppingstone to collusion?

La commission européenne a révisé ses règles en matière de coopération entre concurrents, non pas pour laisser place à une possible collusion entre entreprises, mais dans le but de s’accorder avec la nouvelle stratégie de l’Union européenne : « Europe 2020 ». Cependant, la démarche de la commission européenne permet la création de coentreprises en recherche (Research Joint Ventures), c’est-à-dire que les nouvelles règles permettent à plusieurs entreprises de s’unir pour se partager leurs innovations ainsi que leurs laboratoires de recherches. Mais alors, vont-ils également partager leurs clients ou même leurs prix ? Cette interrogation nous amène à penser que la nouvelle politique pourrait avoir un effet néfaste, car cela va nuire aux consommateurs.
Ainsi nous pouvons nous demander si la nouvelle politique européenne de concurrence permettra-t-elle une collusion entre entreprises, ou si contraire elle sera un tremplin vers « Europe 2020 » ?

Tout d’abord, analysons les aspects négatifs de cette politique. Ces nouvelles règles plus laxistes laissent place aux RJV, ainsi plusieurs entreprises du même secteur pourront s’unir afin de se partager leurs travaux. Cette entente ne doit pas se transformer en collusion, car cela voudrait dire qu’une partie de ses acteurs sera manipulée. Bien entendue, si cela a lieu, les consommateurs pourront feront office d’acteurs manipulés. En effet, ces RJV peuvent déboucher sur une réduction de la concurrence car les entreprises pourront s’arranger entre elles, il y aura donc entente sur les prix, limitation de la production… Dans ce sens, la coopération en matière de R&D est nuisible et donc la politique est mauvaise.

Mais il ne s’agit là que de suppositions, en effet la nouvelle politique de concurrence n’a pas été mise en place pour être un tremplin vers des collusions.
Les gouvernements européens ont adopté un nouveau plan stratégique pour les dix ans à venir, destiné à relancer l’économie européenne. Une de leur priorité est de développer une économie fondée sur la connaissance et l’innovation et pour cela l’objectif est d’améliorer les conditions de la recherche et développement (R&D). Ainsi la nouvelle politique de concurrence va permettre la coopération en matière de R&D afin de créer un environnement propice à l’innovation.
De plus, pour effacer tous soupçons, la commission a instauré quelques limites afin d’éviter toutes collusions : limitation de la part du marché cumulée à 25% afin de bénéficier l’exemption par catégorie de R&D. La restriction sur les prix ou encore l’augmentation des prix sans raisons ne seront possibles, car il est nécessaire d’avoir un accord de la commission européenne.

Selon moi, cette nouvelle politique de concurrence peut être bénéfique pour l’Europe car l’innovation, le progrès technique, et les produits dont les consommateurs vont bénéficier vont s’améliorer grâce aux coopérations.
Il est clair qu’il existe un risque de collusion avec cette nouvelle politique de concurrence, mais les limitations exigées par la commission européenne permettent de se sentir rassuré car le risque de compérage est minime, et la coopération va surtout permettre de faciliter le progrès technique et économique.

Sources :
http://www.larousse.fr/dictionnaires/francais/comp%C3%A9rage/17645
http://www.enseignementsup-recherche.gouv.fr/cid71587/www.enseignementsup-recherche.gouv.fr/cid71587/la-strategie-europe-2020-pour-une-croissance-intelligente-durable-et-inclusive.html
https://www.economie.gouv.fr/dix-propositions-pour-un-controle-des-concentrations-plus-coherent-en-europe
https://fr.wikipedia.org/wiki/Coentreprise
http://www.cnrtl.fr/lexicographie/collusion

Si l’on s’appuie sur l’étude de Sovinsky et Helland que l’on nous présente dans l’article, il apparaît évident qu’étendre l’exemption n’est pas une bonne idée dans la mesure où l’on s’aperçoit que la volonté des entreprises est majoritairement de créer des collusions (et en considérant que les collusions sont toujours défavorable au consommateur). Mais le véritable problème n’est pas, selon moi, de savoir si l’élargissement des exemptions créé des collusion, des cartels ou encore des situations oligopolistiques mais de savoir si cela est bon pour la société dans son ensemble. En effet, on peut imaginer des situations où de tels accords se révèlent finalement socialement efficaces car ils engendreraient tout de même plus de R&D et donc plus d’innovation (par exemple).
En bref, si un accord se trouve être restrictif de la concurrence il faut déterminer s’il produit effectivement des avantages pro-concurrentiels et d’évaluer si ces avantages l’emportent sur les effets restrictifs sur la concurrence. Tout est finalement une question d’équilibre entre avantages et inconvénients.

De plus, dans le cas où il s’avère que la collusion n’est pas bénéfique à la société, il est important de rappeler que ces nouvelles possibilités d’accords en R&D sont exercées sous le contrôle de la nouvelle réglementation qui prévoit des conditions pour les limiter les effets restrictifs à la concurrence. Par exemple quand ces accords constituent une entente déguisée concernant la fixation des prix, la limitation de la production ou l’allocation du marché.

Tout d’abord, comme c’est précisé dans cet article, un seuil de part de marché est fixé : si les parties sont des concurrents potentiels réels ou réalistes, elles pourront profiter de l’exemption par catégorie R & D seulement si, au moment de la conclusion de l’accord, leur part de marché cumulée ne dépassait pas 25%. Donc grâce à cette condition, la nouvelle alliance n’aura, à priori, pas assez de poids pour être capable d’imposer des prix, une qualité… sur un marché existant.
Toutefois dans le cas où la recherche et le développement visent un produit ou une technologie entièrement nouveau qui créé son propre marché, des effets restrictifs tels que des prix plus élevés sur les marchés existants ne sont pas possibles. Les éventuelles restrictions sont alors des restrictions de l’innovation (qualité et variété de futurs produits, la vitesse d’innovation par exemple). Pour éviter ces restrictions éventuelles, il faudrait que les concurrents aient toujours accès aux principaux intrants ou technologies avec des licences par exemple.

Une autre condition importante est que l’exemption ne pourra s’appliquer que si la R&D ne peut pas se faire sans cet accord. C’est-à-dire qu’il faut savoir si chaque partie dispose indépendamment des moyens nécessaires pour mener à bien la R & D. En effet, si la réponse est «non», l’accord de R & D n’aura, en principe, pas effets restrictifs sur la concurrence.

Enfin, en ce qui concerne les principes spécifiques aux accords de R&D il est aussi précisé que toute restriction à la concurrence ne doit pas aller au-delà de ce qui est nécessaire pour réaliser les gains d’efficience et que ces derniers doivent être répercutés sur les consommateurs. Ainsi, selon la loi, la mise sur le marché d’un produit amélioré doit l’emporter sur toute augmentation de prix ou autres effets restrictifs.

En conclusion, il me semble que la Commission a eu raison d’élargir ces exemptions concernant la R&D. En effet, certaines structures de marché et stratégies de firmes considérées généralement comme néfastes au bien-être social peuvent s’avérer profitables à condition qu’elles s’exercent sous le contrôle d’une autorité de régulation (conditions mises en places comme par exemple les 25% de part de marché à ne pas dépasser). Cette politique fonctionne car elle permet de favoriser la R&D tout en limitant les risques de collusion et les restrictions à la concurrence en étant applicable seulement sous certaines conditions (même s’il est vrai que ces dernières peuvent parfois être difficiles à contrôler).

http://rei.revues.org/3804?lang=en
http://digitalarchive.maastrichtuniversity.nl/fedora/get/guid:f449437f-2ef3-4a29-beb1-b9df990ca77e/ASSET1
http://www.klgates.com/files/Publication/936e9cd7-ba15-4217-bca1-08ae2b4c11d0/Presentation/PublicationAttachment/a5f5990a-6469-4963-950f-0cce159f3fe4/Research_and_Development.pdf

As far as I am concerned, the competition authorities should follow a case-by-case basis instead of general prohibition or exemption regulations. According to Johannes Johnen*, modern competition policy increasingly uses a case-by-case approach and there are fewer bans of practices but more investigations in the actual situation, which requires good economists to do these investigations.

Tomaso, Lars-Hendrik and Jo (2014), using information from the U.S. National Cooperation Research Act, find robust evidence that large networks between direct competitors, created through firms being members in several RJVs at the same time, are conducive to collusive outcomes in the product market that reduce consumer welfare. By contrast, RJVs among noncompetitors are efficiency enhancing. These results suggest that it is important for competition authorities to at least distinguish whether the participants of the RJVs are direct competitors or not first before deciding whether to facilitate the cooperation.

Furthermore, even though RJVs might serve a collusive function, it is not necessarily harmful for social welfare. Hinloopen, Smrkolj and Wagener (2013) examine the trade-off between the benefits of allowing firms to cooperate in R&D and the corresponding increased potential for product market collusion utilizing a dynamic model of R&D whereby they consider all possible initial marginal cost levels (technologies), including those that exceed the choke price. They show that an extension of the cooperative agreement towards collusion in the product market is not necessarily welfare reducing: if firms collude, they (i) develop further a wider range of initial technologies, (ii) invest more in R&D such that process innovations are pursued more quickly, and (iii) abandon the technology for a smaller set of initial marginal costs. Therefore, extending the scope of the R&D block exemption, which might facilitating collusion, can still be welfare enhancing, which calls for detailed case-by-case analysis.

Also, the criterion of the exemption regulation should be examined carefully before considering about extending it further. For example, according to Richard and Bruno (2014), the exemption regulation should be simplified by withdrawing the market share criterion as limiting the exemption to low market shares(combined market share of the parties not exceed 25% of the relevant market) is not well-grounded. They examine the theoretical basis for this criterion by extending existing models so that a subset of firms innovates and participates in an R&D cooperation agreement. They identify one, the outsider effect, that can lead firms to increase R&D under cooperation precisely when their combined market share is high. In a general model in which all firms innovate, they also find that R&D agreements can be more beneficial at higher market shares. Thus the limitation ruling out the agreements with a high combined market share can hinder desirable cases, which is inconsistent with the goal of facilitating innovation.

* Dr. Johannes Johnen in LECON 2370: Industrial Organization and Competition Policy course Introduction class at the Université Catholique de Louvain, 2016.

Bibliography:
1. Tomaso,D.,Lars-Hendrik,R.&Jo,S.(2014). Collusion Through Joint R&D: An Empirical Assessment. Review of Economics and Statistics,96(2),349-370.
http://www.mitpressjournals.org/doi/abs/10.1162/REST_a_00367#.WAeoTPl94dU
2. Hinloopen,J.Smrkolj,G.& Wagener,F.(2013).In Defense of Trusts: R&D Cooperation in Global Perspective.CeNDEF Working Papers 13-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
https://ideas.repec.org/p/ams/ndfwpp/13-05.html
3. Richard,R.& Bruno,V.(2014).Market shares, R&D agreements, and the EU block exemption. International Review of Law and Economics,37,15-25.
http://www.sciencedirect.com/science/article/pii/S0144818813000343

I have a mixed opinion about the impact of R&D cooperation. For me the authorities have to be very careful about their regulations and its stakeholders because the first involved are the big firms wanting always more profits and I think that these new policies promote the cooperation between these big firms to the detriment of smaller firms or SMEs. According to me 25% is so a too high percentage for the combined market shares of the parties in the relevant market.

This is already big companies which strongly dictate the behaviour of the economy so I am wondering if the fact that authorities allow some form of agreement will not encourage these firms to join to expand even more this control. Good or bad cooperation is still cooperation and in this case it would be the power of innovation that would be involved. Big companies are already controlling the innovation and linked consumption with planned obsolescence.
These regulations are good but I think that we need to take other initiatives and to brake firms having more and more power on the consumption market and its repercussions (health, …). According to me the risk of collusion is thus big and between the “bad” parties (big companies).

On another side this is true that these regulations encouraging the “good” cooperation seem to be good at the first sight for the innovation according by the economic theory.

According to me, the commission made the right choice when decided to extend the scope of the regulation about R&D agreements in 2010 because not only the firms need innovation to survive but the whole society needs it too.
We are facing some of the biggest challenges of the human history such as global warming, resource scarcity, etc. And innovation is one of the best ways to deal with those challenges so helping firm to innovate is a crucial goal for the society.

Indeed with the emergence of many innovative start-up in Europe it will be very helpful that big companies can now make « paid-for research » agreements with them.
The hypothetical innovation will be easier to develop and implement thanks to this regulation and will increased the surplus of both the firms and the consumers by reducing the production cost or by increasing the efficacy of the products/services.

Of course the big issue with this regulation is that it will help malicious firms to collude.
My belief is that the commission must add strict requirements to minimize the risk of collusion while maximizing the probability of innovation.

One of those strict criteria that firms need to fulfil is to have a combined share on relevant market smaller than 25%. So that even if the risk of collusion is real, it will be difficult for the cooperating firms to make a price agreement without being outperformed by the other competitors on the market or detected by the comission.
I will not develop every guideline and regulation that the commission imposes to the firms making a cooperation agreement but their aim to minimize the risk of collusion while making innovation easier. Yet even if the commission is looking to do the best, those guidelines and regulation may not be enough and the commission may have to do a case-by-case assessment and adds specific rules for specific market.

As a conclusion, I strongly believe that this regulation is useful but that the commission as to be very careful when she shall give its agreement to firms to let them cooperate in order to maximize the probability of innovation while minimizing the probability of collusion.

I would like to contribute to this question “In view of these results (namely that R&D cooperation can indeed be seen as a steppingstone to collusion), which policy should competition authorities follow? Was it really a good idea to extend the scope of the R&D block exemption in the EU? Are there other remedies to this problem?”

I believe that R&D cooperation can be “good”, there are a few of reasons why we could gain from the exchange of information and knowledge. One of them, is well know: most of the knowledge is shared informally (the know how, the experience) and thus allowing R&D cooperation would foster this phenomenon, and I believe this can be good.
There is also the fact that if two firms combine their resources of R&D, they have some costs that they would split between them: one “research lab” instead of two, fixed costs shared, one research team, with only one research department, only one “chief”,… and so on.

It can also alleviate price war, which in the Bertrand setting lead to the zero profit situation. This would lead to the collapse of firms (here I assume that if firms make no profits in the long run, there is no point for them to stay). So this situation would mean fewer firms on the market, a situation that might mean oligopoly/monopoly and this situation is far worse than a situation where R&D cooperation occurs with more firms (it could also lead to fewer innovations since a monopoly has less incentives to innovate than a competitive firm when he is not threatened by entry or when he cannot perfectly appropriate his return of innovation (1)).

The side effect of R&D cooperation would be the collusion; what I would call the “ugly”. Since there is evidence that it could happen (2), one might think of a solution.
Hence, the state is there to step in when the market fails, so to me there are various ways of how the governments could offset the increase in the likelihood of collusion.
I will now review a few things that could deter collusion and where there is room for government’s intervention.

First, there are two obvious ways of fighting collusion: harsher punishment if collusion is spotted and the leniency programs (3).

Secondly, the more firms on the market the more difficult it is for a group of firms to collude. With that, there is also the fear of entry that would make collusion less likely and gives incentives to break cartels (4).
There is a clear role for the government, which is to facilitate entries on the market (by, for instance, reducing and fighting the barriers to entry).

Since, the ugly can be corrected, we can assume can the good would overweight the ugly corrected and thus R&D cooperation may be a good thing after all.

I hope I have contributed to a better – yet modest – understanding of the debate.

(1) BELLEFLAMME P., PEITZ M. (2010), Industrial organization: Markets and Strategies, Cambridge university press
(2) SOVINSKY M. HELLAND Helland E., (2012), Do Research Joint Ventures Serve a Collusive Function?, (page consulted on 9/10/2016)
http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2013/twerp_1030_sovinsky.pdf
(3) http://ec.europa.eu/competition/cartels/leniency/leniency.html
(4) http://ec.europa.eu/competition/mergers/studies_reports/the_economics_of_tacit_collusion_en.pdf

At the end of this article, Mister Paul Belleflamme asks us three different questions which are: “In view of these results, which policy should competition authorities follow? Was it really a good idea to extend the scope of the R&D block exemption in the EU? Are there other remedies to this problem? I’d be happy to hear your views about that issue”
I will try to answer at each in the following subsections with my own view supported by different arguments founded in scientific and economics articles.

First of all, in view of these results, the competition authorities should follow a particular policy that maximizes the social welfare. As mentioned in the article, the research joint venture plays an important role in the innovation game. The companies participate and cooperate on the R&D of others companies to promote exchange of know-how, increase efficiency and promote non-drastic innovation. That has a positive impact on the social welfare. So, the answer of the first question should be: the competition authorities should follow a policy who encourage all the research joint venture (RJVs)
However, cooperation at the R&D stage could lead to coordination in the product market and this could lead to collusion and tacit agreements. The collusion leads to a monopolistic situation during a certain time if firms do not deviate and that has a negative impact on the social welfare.
So the ideal regulation to follow should be a regulation between the two extremes: the maximization of the R&D cooperation and the minimization of collusions.
In my opinion, the ideal regulation must not concentrate on “horizontal agreements”. In different researches they show that RJV’s between direct competitors are conducive to collusion.
« We find robust evidence that large networks between direct competitors –created through firms being members in several RJVs at the same time – are conducive to collusive outcomes in the product market which reduce consumer welfare. By contrast, RJVs among non-competitors are efficiency enhancing ».
Furthermore, this RJVs will create important networks who will facilitate collusion. “Empirically, we estimate the horizontal network size above which it becomes problematic in terms of collusion when it includes 18% or more of its direct competitors.”

Secondly, I find personally that the competitions authorities can extend the scope of the Block exemption of R&D agreements in the EU provided that the firms are not allowed to cooperate the product market.
“First, RJVs can be facilitating vehicles which create common assets – and therefore common interests – among participating firms and therefore provide a new credible punishment device (Cabral, 2000; Martin, 1995).
Second, through the sharing of research findings, RJVs may reduce cost asymmetries among firms and hence make product market agreements more stable (Miyagiwa, 2009).
And third, RJVs can be used for the transmission of information to signal cooperative behavior (Cooper and Ross, 2009). These theoretical arguments thus show that there are various channels through which R&D collaboration may facilitate product market coordination.”

Finally, other remedies exist to this problem, to prevent the formation of collusive networks. The competition authorities should keep in mind the market shares of the participating firms.
According to Tomaso Duso, Lars-Hendrik Röller and Jo Seldeslachts, if the insider’s market shares decreases, compared to non-participating rivals that could be a proof of a collusion behavior. “A lower insider market share is also necessary and sufficient for decrease in consumer welfare”.
Moreover, according to Michelle Goeree and Eric Helland, if the government strengthens the leniency program, it could decrease the R&D collaboration which lead to collusion. “The underlying idea is that firms use RJVs as a collusive too, then tougher antitrust sanctions should make firms more cautious […] If product market collusion is not a motivation to form an RJV, they argue, the propensity to enter into an RJV should not be affected by this change.”

I hope that you have appreciated my work, mainly inspired by articles and scientific researches to the issues of Paul Belleflamme.

Bibliography :

1) Duso T. , Röller L-H. and Seldeslachts J. : “Collusion Through Joint R&D: An Empirical Assessment”, The review of economics and statistics, May 2014, Vol. 96, No. 2, Pages 349-370

2) Goeree M. and Helland E. “Do Research Joint Ventures Serve a Collusive Function?” Institute for Empirical Research in Economics Working Paper Series, 2010

3) Pennings E. , Duso T. and Seldeslachts J. : “On the stability of research joint ventures: Implications for collusion” , Review of Business and Economic Literature, 2012, Vol. 57, No. 1, Pages 98-110

4) Suetens S. “Does R&D cooperation facilitate price collusion? An experiment.” , Journal of Economic Behavior & Organization,

When considering the regulation of R&D cooperation agreements, competition authorities face a dilemma. Indeed, on the one hand these types of agreements can potentially increase social welfare, notably by spreading new technologies faster and avoiding double effort. On the other hand, however, research has established a clear link between R&D cooperation and a greater chance of collusion among the firms in the agreement.

We believe that in face of such a situation, competition authorities should have a balanced approach and design the policy that finds the best compromise between R&D cooperation and free competition on the market. In order to do so, the European Commission should first impose stricter conditions for firms to benefit from the block exemption and thus engage in R&D agreements. One could suggest, for example, that companies which have been recognized to have engaged in collusion schemes in the past 10 years should not be granted the right to sign R&D cooperation agreements with other firms.

In addition, competition authorities should be cautious when extending the scope of the R&D Block Exemption Regulation and always consider implications of such policy changes on the competitive environment. Regarding the specific case of the 2010 extension of the Block Exemption, one could argue that allowing “paid-for research” agreements might lead to an increased risk of collusion among the firms in the agreement. Indeed, the firm which funds the research could threaten the other firm to stop the funding if the latter undercuts its prices.

The complementary policy to stricter block exemption conditions would be greater penalties for colluding firms in a R&D agreement. Would it not seem fair to penalise collusion more when it takes place within a context where competition authorities grant firms special exemption rights from competition regulation, which is the case in R&D cooperation agreements?

Both of these measures, hopefully, should help competition authorities find the best trade-off between greater social welfare obtained by honest R&D cooperation agreements and reduced risk of collusion from stricter penalties for colluding firms in the context of such agreements.

In my humble opinion it is probably impossible to completely disentangle joint R&D (or RJV) and associated collusive risks in order to identify the latter. R&D investments and all the productive modifications that follow the application of innovative knowledge are more than sufficient – as a façade – to hide from the authorities increases in prices or reductions in output quantities that originate from collusive behaviours rather than innovations.

Nonetheless, I believe that increasing more than reducing R&D incentives (and thus, for example, extending the scope of the R&D block exemption in the EU) can be considered beneficial for the society. Balancing out the effects, even if collusive agreements associated with R&D harm market and consumers, I believe their repercussions to be of the static kind, while the beneficial effects of innovations are dynamic and have positive consequences that, considered as a flow, outweigh the collusive losses.

Realistically, taking the question from a different perspective, we could say that the risk of collusive agreements, which can perhaps be reduced but never fully eliminated, is part of the variable costs that society has to bear for acquiring innovation.
At the same time it is also true that, as the peculiar work of Sovinsky and Helland shows, the literature on collusive agreements is evolving in an unpredictable way, enhanced by collusion itself: the more collusive agreements are identified, the more the literature grows in accordance with the dimension of the sample of cases, overally and hopefully making collusive agreements more difficult to hide, thus more costly and less beneficial for the firms.

In this blog post, R&D cooperation as a potential steppingstone towards collusion is brought up. Two interesting questions are posed: What kind of policy should competition authorities follow in order to mitigate the negative factors around R&D cooperation and foster and facilitate the positive factors? Was it really a good idea to extend the scope of the R&D block exemption in the EU?

My initial response to the last question is yes, I think it was a good idea to extend the scope of the EU’s R&D block exemption. This because from a social welfare perspective, there are many benefits for society when firms cooperate to innovate. For example there is less duplication of efforts as firms instead of competing against each other to become the first to arrive at an innovation, can pool their resources together and work towards a common goal. With more resources and coordinated efforts, they are more likely to reach the innovation faster. Still, it is clear that such an extension of the EU policy likely could lead to more collusion and anti-competitive behaviour between firms.

Therefore measures aiming at restricting collusion should be taken, and the EU can look to the antitrust policy that was made in the US in 1993 for inspiration. This antitrust policy made it, as the blogpost explains, more attractive for cartel members to report illegal behaviour. Researchers found that firms’ willingness to do R&D cooperation was reduced after the introduction of this antitrust policy, indicating that the cooperation had in fact been a steppingstone to collusion. The danger with introducing such an antitrust policy is that it will likely limit the cooperation between firms, which could lead to less R&D being performed overall. Therefore, the question, from a social welfare perspective, is what benefits the society the most? Is society better off with less cooperation between firms which would increase cooperation and drive prices down, but also probably reduce the amount of R&D carried out, which would again likely lead to less innovation in society? Or is it better for a society to allow firms to cooperate more so that incentives for them to coordinate R&D efforts and contribute with important innovations in society are made? However, at the same time maybe this allowed cooperation leads to a bit too much cooperation in the product market making firms able to keep prices higher than they would have been in a more competitive market.

This is obviously a very hard question to answer, as there are good and bad parts on both sides. However, from my point of view, as I see this from a social welfare perspective, I believe that we might have to allow some of this collusion in order to foster innovation. Several researchers have found that social welfare under collusion exceeds social welfare under competitions (See e.g. Deltas et al. 2012). It hence seems as if the benefit society gets from firms coordinating their R&D and the spillover effects this create, is greater and outweighs the loss of social welfare due to the reduced competition.

Therefore, arguing from a social welfare perspective and for what seems likely to benefit the European societies the most; what I would argue for, is that extending the scope of the R&D block exemption in the EU is mostly a good idea. Nevertheless, it should be taken seriously that this could reduce competition. Introducing some sort of antitrust policy, similar to the one in the US, should be looked into, but policy makers will have to carefully assess how to do this and to what extent as it seems as if society has more to loose from less collusion than less competition.

Source: Deltas et al. (2012): “Social-Welfare-Enhancing Collusion and Trade”, a book chapter by Deltas, G., Salvo, A. and Vasconcelos, H. in Recent Advances in the Analysis of Competition Policy and Regulation by Harrington, J.E., Katsoulacos, Y., and Regibeau, P., Elgar Publishing, 2012

Is R&D cooperation a steppingstone to collusion? Should we therefore prevent firms of doing so? Once again, I don’t think that there is a single answer to this question. Indeed firms are very heterogenous and implementing a common policy to all of them on this matter would be inefficient.
For example, the temptation to collusion is reserved to firms owning large market shares. In fact, collusion is appealing to firms only if it enable them to behave like a monopolist. Such strategy would be impossible to implement in highly splitted market. This element has to be taken into account while reading the conclusions of Sovinski and Helland (2012). Indeed, they used data covering firms working in three highely concentred market (Telecommunication, Petrolum products and computer). Furthermore, they even acknowledge that <> (p.21 of their paper) in their database. Their conclusions may therefore only be true for some specific markets.
The European Union has take this situation into account while building its policy on this issue. R&D cooperation between firms is allowed as long as their total market share is smaller than 25%. We can always argue on the value of the total market shared (25% seems too small too me) but everyone should agree that this policy will prevent collusion while allowing firms to cooperate in R&D.
Cooperation in the field of R&D is crucial for technical progress. The added-value of cooperation is so important that most of the european research funds such as Horizon 2020 or ERA-Nets are reserved to projects developped by several firms (source: NCP Wallonie).
As a conclusion I think that the european policies both spur efficiency by promoting cooperation in R&D and fighting monopoly by allowing such scheme only on some conditions.

An agreement on price or output that affects consumers is normally forbidden by antitrust laws. By contrast, R&D cooperation is accepted and even encouraged by competition authorities in order to avoid underprovision of R&D and the negative welfare effects that it could produce.
On one hand, R&D cooperation in the presence of spillovers is generally seems as welfare enhancing.
On the other hand, R&D cooperation does not necessarily lead to coordination in the product market. Nevertheless, according to Michelle Sovinsky and Eric Helland (2012), cited in this article, R&D cooperation may facilitate coordination in the product market.
There are many examples of cases in which R&D collaboration lead to anticompetitive abuses:
Goeree and Helland (2010) gather a number of cases in the petroleum industry, the computer industry, the semiconductor market and in telecommunications.
Other example, according to Grossman and Shapiro (1986) when the research joint venture stipulates downstream market division for any patents that could result of the venture , or when there are collateral agreements that impose cross-licensing of old patents or a per-unit output royalty for using new patents since this reduce the incentives for firms to increase output.
Another example, firms can sustain collusion more easily when they participate in multiple markets as compared to the situation in which they interact in one market only.

Finally, Hagedoon, Link and Vonortas(2000) conclude that “With all their benefits, partnerships have the negative potential to block competition and create various kinds of static and dynamic monopolies _in existing and future markets, respectively”.

Michelle S. Goeree and Eric Helland (2010) “Do Research Joint Ventures Serve a Collusive Function?” Institute for Empirical Research in Economics Working Paper Series
http://www.iew.uzh.ch/wp/iewwp448.pdf

GENE M. GROSSMAN and CARL SHAPIRO (1986) “Research Joint Ventures: An Antitrust Analysis”
http://www2.dse.unibo.it/barigozzi/corsi/antitrust/GrossmanShapiro_JLEO1986.pdf

John Hagedoorn , Albert N. Link and Nicholas S. Vonortas (2000) “Research partnerships 1”
Research Policy.
http://arno.unimaas.nl/show.cgi?fid=2466

As told in the preview post, cooperation in R&D between enterprises in the same market could be theoretically very favorable for both because it allows a diminution of duplications efforts and also a growth of innovation . I mean that they will raise the capital in R&D and will share their informations between them. That will thus lead to a fast growth of innovation. The problem linked to this policy is the risk of collusion. Indeed, theoretically a cooperation in R&D is benefit for markets and consumers because the concurrence will still be present , as the price wars. But, there is a risk that this agreement hide a collusion. In this case, the total social welfare of consumers will decrease and prices could raise. Actually, cooperations in R&D are allowed by the European Commission (2010) only if the sum of their market shares are lower than 25%. I totally agree with this policy because that allows smaller companies to be able to follow leaders in terms of investments in R&D. And, moreover, maybe make them able to get more market shares by finding new innovations. They will not specially get an advantage in a collusion.

About the expansion of this rules, i don’t really have an opinion.

In one hand, if the rules is applied in Europe, that will for me allowed big companies to create “cartel”which are almost invisible for the regulation institutions. The consumer’s surplus will significantly decrease due to the indirect diminution of the competitivity. Moreover, a company in a cooperation can steal informations, copy some strategy and see the SWOT of others on it. Once again that could decrease the total surplus. Another negative aspect of this extension is the risk of a slow of innovation. Indeed, competition, despite the wastage of money, motivate companies to try to differentiate themselves, and so on to innovate. By the regrouping of knowledges, all resources are allocated only for a purpose, others are not considered.

For me, the perfect solution could be to increase the scale of this expansion only in some sectors. Indeed, regulation institutions should expand this rules only for slow research sectors (see above for examples). The control will be easier because it will be only for one sector. Moreover, a written contract should be conclude between regulators and companies which contains all details about conditions and limits. And we could imagine a system where companies have to make early reports of the cooperation results.

The revised EU R&D policy on block exemptions in 2010 has been liberal in encouraging RJVs (research joint ventures) but that is not just motivated by the urge to get over the economic crisis and promote investment (or reduce waste investment) but also because it allows your investments to generate high returns with minimum risk.

Now to understand where does this policy impact the product, we understand the 4 stages of the product development process:- 1) R&D investment/ technology up-gradation 2) prototype (or molecule) development, 3) testing and 4) final product roll-out in market. The RJV policies allow collaboration in the 1st stage directly but its impact culminates in the 2nd stage invariably. Now the JV parties understand the final product is going to be similar and results in a greater temptation to reduce competition and strategically maximize profits simultaneously by cooperating. This leads to collusion in 4th stage by either demarking territories/ target customers or by maintaining a higher than expected threshold price. This is a practice most common in petroleum and gas industry where parties enter into JVs by sharing the cost of discovery and this ultimately leads to profit sharing or price collusion ultimately.

One way of making sure the venture doesn’t violate any competition laws is by applying it to industries where the end-product type is almost always similar (homogenous) and the major differentiator for companies would be their way of positioning and selling/ making available their products. Also, another important criteria in filtering the applicable industries should be that the product’s proposed invention shouldn’t be with the capitalist mind-set alone, where the intent is to fulfil the ever-increasing luxury desires of the rich (eg:- a car that could fly, drones for home delivery), but rather a one generated through the necessities especially for the masses (eg:- cure for ebola or Hepatitis C virus, cheaper alternatives to fuel etc.).

As suggested by Sovinsky and Helland (2012), collusion has been a major attraction for firms collaborating in RJVs. With stricter regulations, collaborations have significantly decreased now in certain industries. Considering this observation (which most likely applies to other industries too) and clubbing it up with certain specially designed rules per industry (as per the views laid in the preceding paragraph), policymakers should focus on creating a more controlled RJV environment. The effect of this promises to continue remaining fruitful in capital-intensive industries where the initial discovery costs are high and hasten essential discoveries.

In my opinion R&D cooperation has to know some incentives form European Commission, but those incentives and their impacts must be controlled. However, to avoid the negative externalities of these cooperation, the EU has to achieve to right position among promote, supervise them and reprehend them.

Moreover, this shared purpose could lead to collusion. We have to take care of that collusions occur. Most of them induce many troubles in the market. There are different ways to prevent these collusions and protect the market against. Antitrust law, leniency policy… are present in the world in different forms but we will focus on EU policy.

Through this new policy the competitors receive an incentives to cooperate away from their own market. This could minimize the incentives to create a cartel. Despite of this new legislation, the collusion’s sustainability is less affected.

I think that the best way to achieve a growth of innovation while the risk of collusion decreases, we should focus on the main purpose of R&D cooperation which is a maximization of total welfare. Respectively build an environment friendly for innovations and bad to sustain collusion.

To conclude, I think that the EU policy is good but not enough. To achieve the objective of European commission a trade-off is needed between antitrust and R&D agreement policy.

Intellectual property is always a controversial subject. It’s mere existence is often debated. However, in my opinion, modern intellectual property is essential and must always strive to be a fine tuned tool that allows for the innovation to thrive, much more than let any non competitive behavior to happen.
While it may seem like a game of cat and mouse at times, it is important to try to “patch” these loopholes that arise. This way, it is a good idea to try to see the good points about research joint ventures.
In my opinion, the perfect use for research joint ventures would be for companies that either have a hard time investing, or would have a hard time recovering their investment if they pursued it by themselves (either because there is high volatility and they are not sure if they will come up with a relevant invention, or because of the sheer difficulty of running R&D efforts), but have as a main goal to bring new innovation to the market. This is the key difference, since we want companies that are looking to push products out without the risk of R&D losses, instead of uniting big entities to collude after the invention is made. Hence, one of the ways to strike a balance, in my opinion, is to reward the right use of this structure (RJV), and punish its bad uses. So, for example, in addition to lowering the time validity of patents arising from these joint ventures, another way to stimulate fair competition is to force these patents to be licensed, with a value being decided by a regulatory entity, but based primarily on the investment costs. This way, we make sure that any invention that is profitable will still yield a good return on investment to the companies that are a part of these joint ventures, while ensuring that intellectual property as a collaboration isn’t turned into an anti competition tool, that ends up leaving the consumers and overall market worse off
Therefore, I believe that we shouldn’t give up on the idea of collaborative R&D. I just believe there is a certain execution that will lead to better results than certain inevitable anti trust and collusion lawsuits.

R&D co-operation also known as horizontal agreements is defined as “R&D activities which are jointly conducted with other firms or research institutions”. They occur in many facets and can be distinguished in the degree of co-operation and the manner of co-operation e.g. pooling of research forces, research funding etc…In the following comment I would like to discuss the pros and cons of R&D cooperation underlying the maximization approach of gross welfare at the example of the revised competition rules on horizontal agreement by the European Commission in December 2010.

Firstly, on the one hand one can presume the existence of illegal agreements on the product market when authorities, who are in charge, loose the borders of R&D cooperation laws or allow it in the first place at all. As we can see from Warwick and Helland there might be evidence by raising this these.
On the other hand when we focus on the EU’s legislation in 2010 concerning this topic, which is mentioned before, and the statistics of antitrust investigation, there is a negative correlation between the number of investigations (started by national authority or the commission in suspected cases) and time since 2010. In other words, after the revise of the assessment of R&D co-operation agreement between competitors in 2010, which mainly extended the scope of regulation in this particular field, one can perceive a decrease of antitrust investigation over time. Numerical, from the year 2011 to 2012 the figures of antitrust cases within the EU diminished about 31,29 %.
Hereby, it has to be mentioned that this could only be a first brief look on the topic and cannot replace a well-defined multivariate analysis to determine the factors of influences on the statistic.

Nevertheless, one cannot deny that there are a lot of positive (side) effects of R&D co-operation between competitors. We know that “[…] IP generating activities suffer from three sources of market failures: externalities, indivisibilities and uncertainty.” When it comes to R&D ventures the free-riding effect gets alleviated by working together to create IP, instead of performing inaction while participating on spillover effects of knowledge.
Furthermore R&D co-operation leads to risk pooling because the uncertain project don’t have to be borne by a single firm any more. Therefore this practice also reduces uncertainty for the actors.
On top, by sharing costs and preventing firms to perform “the-winner-takes-all” races with same R&D projects, involving unneeded expenditures, reduces “problems stemming from indivisibilities”. As a short conclusion at this point, through R&D ventures there can be a small or bigger shift from market failure to efficiency.

To put it in a nutshell there is much to be said for extending the scope of R&D co-operation between competitors. To ensure a social preferable degree of ventures and deter firms to extend their co-operation on the product market as well, including price fixing or limiting production, there has to be a clear-drawn border between legal and illegal agreements and in addition penalties which reflect at least, in case of infringement, the consumer welfare loss. That rules has to be monitored by an instance with enough capacity to underline the given antitrust laws in a credible way.
Moreover with the restriction that the co-operating firms are only allowed to exhibit a maximal collected market share of 25%, the European Commission ensure a proper and reasonable balance between market power and efficiency (e.g. without deterring firms to create Marshallian districts with the positive side effects on the society as a whole).

sources:

http://ec.europa.eu/competition/ecn/statistics.html#1
ftp://ftp.zew.de/pub/zew-docs/dp/dp06059.pdf

http://www.epo.org/about-us/annual-reports-statistics/annual-report/2013.html

http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2013/twerp_1030_sovinsky.pdf

Industrial Organization Market and Strategies, Paul Belleflamme and Martin Peitz, 2010, Cambridge University Press

R&D is naturally an expensive and risky investment. And after this, there are also appropriability issues of this new knowledge. Their final results, and technological progress, are essential not only in the company point of view (for example, aiming differentiation) but also for the economical growth, as demonstrated by the Sollow-Swan model. To increase the weigh in the “pro’s” side of the balance, and mitigate the “con’s”, or in other words to induce R&D investments, the governmental institutions make of use a variety of tool at their disposal. Either by increasing the returns (through IP rights) or decreasing the costs (through subsidizing) the governments have been a traditionally having a important role in managing the degree of market’s innovation. One other tool that is often considered is the allowance of R&D cooperation between companies.
The theoretical basis supporting allowing companies to cooperate in R&D is strong. By sharing the risks and enabling a better allocation of resources between companies, the cooperative investment in R&D can bring better final results than its competitive solution. Although, the success of this type of measures can be very circumstantial.
The proximity required for R&D cooperation an the strategy alignment for R&D investments that emerge out of it will naturally be heavy inductor to other types of coordination. Personally, I see this collusive market behaviors directly as an expected consequence of this policies and, for that reason, a bigger attention by regulators must be taken and safeguards (like the 25% combined market share limit) must be included. I believe (and EU also by supporting this policies) that the benefits exceed the “competition decrease costs”, specially when applied to smaller companies in bigger markets, where located collusion effects won’t be so large and R&D coordination can allow a more focused investment efforts by these companies weaker (in capital perspective).

After reading this article, my opinion that this policy was « the perfect » solution, has slightly changed, but I am still in favor of it.

First of all, it has not been made by complete ignorant, but by economists, who have each one a different vision and way of thinking. So if the majority of them agreed on the fact that this solution could work, I think I can trust them. But this is a completely personal way of thinking, and by using more economical arguments, I fear that some problems could occurs.
The fact that it will lessen or even eliminate the duplication of effort in R&D is quite a positive thing, as it was a deadweight loss. It will be a powerful incentive to innovate, which will lead to more competition, which is the goal at which this policy is aiming, but only if it doesn’t incent firms to collude! It seems paradoxal but it is, for my point of view, what is the most likely to happen.

Sovinsky and Helland have already proved it, by showing that when a new antitrust policy is implemented, in order to reduce collusion, a lot of firms didn’t found attractive anymore to be part of a Research Joint Venture. They seemed more interested by reducing competition than reducing their costs and increase innovation, so we can ask ourselves if it was really a good idea to extend the scope of the R&D block exemption….

I don’t know if this is realistic in term of time and charge of work, but a way to reduce the negative externalities ( incentive to reduce competition) could be some controls before and after the beginning of the cooperation, to check if some majors changes have occurred in pricing, entry deterrents for other firms,…. And make it clear for firms that huge fines will be charged to those who show signs of abuse.

However, as I said earlier, I’m still in favor of this policy, because of all antitrust measures that are already in place, it will be very difficult for firms to find a way of colluding that will be sufficiently profitable for them and also sufficiently hided in order to not be discovered or to be sufficiently profitable for everyone in order to not make any part of the colluding wanting to denounce.

I agree with commission’s decision to extend the scope of the regulation to allow cooperation in R&D. Competitive R&D does not maximize social welfare, as resources are wasted on doing the same research as the competitors. This is especially true if the initial costs of R&D, like setting up a lab, are very large.

The Sovinsky and Helland study represents a very unique case. The sectors chosen by the study all have very high entry barriers, hence have limited competition. In such an environment, it becomes easier and more profitable to collude in the product market. I think that the presence of RJVs is not the main cause for collusion.

However, I agree with the authors that collusion on product market reduces social welfare and should be prevented. This could be done with stricter monitoring by competition agencies of EU rather than by preventing collaborative R&D ventures

In my opinion, R&D cooperation is a good opportunity to spur innovation. Indeed, some innovations require expensive and risky investments. This block exception can help a company for providing a product more rapidly. It could be benefit for companies present in dynamic markets like IT for example. Indeed, in this kind of markets, a company should be able to provide continuously up-to-date products to be as competitive as possible. Moreover, this block exception also affects positively consumer surplus because market could be more competitive where more product could be launch and more choices are available for consumers.

Secondly, as mentioned in this article, the bad point of this decision is that it can lead to a cartel. But in my opinion and regarding to the Sovinsky and Helland‘s study, the extension of the scope of the R&D block exemption in the EU allows competition policy to have a stronger control on companies that want to join a RJV. In the Sovinsky and Helland’s study, we see that the revised leniency policy decrease the probability for companies to join a RJV in all industry concerned. Thereby, with the block extension, we can assume than companies which want to collude for sharing confidential and anti-competitive information will not use RJV to collude due to a stronger control.

Finally, in my opinion, the extension of the scope of the R&D block exemption plays 2 roles:
– Having a better control on companies taht want to collude
– Promoting innovation

I would like to comment on the role of collusion in the decision to invest in R&D with an example. Suppose two firms in the same market can, through R&D coöperation, come up with a new product that is actually a variation of existing technologies. They would not be able to patent this because it is not ‘new’. In this situation it is possible that the firms feel that the only way to gain from innovation, is if they collude afterwards and recoup their cost by higher markups in the short term because they might expect to be copied by other firms soon. This would be a very similar situation compared to a patent actually, as they a the short period of collusion as a means to recoup their costs.
I feel that there are many possible situations where firms are not able to patent their innovations, so collusion is their only chance to recoup the investments. If they think collusion is impossible, they might not even try to innovate. This way, collusion can be good for total welfare in the long run, considering the new product would benefit the consumers.
This is by no means a plea to allow collusion, because I think that it has negative effects in most situations. I’m just trying to emphasize that for every distinct rule you make, there can be negative effects (in my example it could impede innovation). This implies that judging R&D coöperation and possible collusion on a case by case basis could be better in some markets. For example if in one market innovations are easy to copy and profits would quickly fade, other rules/decisions could have a better effect than in a market where innovations are extremely complicated and hard to copy such that an innovation will provide enough profits to recoup investments, even without collusion.

As my colleagues, I find the extension of the Block Exemption Regulations a good point. If I understand well, the aim is to help companies to work together in terms of R&D and to limit the agreements harmful for us, consumers. In fact, increase the social welfare.
If companies search to find a new product, maybe they have not the same final goal. The risk is that they make agreement like collusion but hidden by the R&D research. The commission wants to control the exchange of information.
As we know, R&D can cost a lot of money and then cooperation allow to companies a sharing of this cost and most important, a sharing of technologies. A good idea is not sufficient to be an innovation, most of the time resources are needed. I think that it is motivating to companies to know that commission help the cooperation.
To conclude, I’m not sure if the regulation is reliable to avoid the collusion and the decrease of social welfare, of course some companies always try to cheat and skirt the system. But I’m totally for this kind of cooperation to bring motivation to firm and why not more employment in the future?

In line with most of the previous posts, I am also in favour of allowing firm to cooperate on RJV’s activities and with extending its scope. However, I would like to contribute with 2 main ideas.

Firstly, I disagree with the idea that the main finding in Sovinsky and Helland (2012) is that RJV’s activities are leading firms to collude. Indeed, they show that some firms were colluding, as Adam Smith warned “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices”. But if this collusion was not through RJV, it would be through CSR activities, charity support activities, ALUMNI associations, private clubs, etc… So, what I believe to be the important result from their study is that leniency programs work! That is actually in support of RJV’s activities, as with leniency programs just the firms that are really interested in this activity and on its possible outcomes will commit to it. Regarding the ones that were just interested in RJV to collude, the authors’ research has shown that leniency clears them out! Thus, as we also have harsh leniency programs in the EU, then it is perfectly reasonable to maintain or even to extend the scope of RJV’s activities.

Secondly, we must keep in mind that, as N. Kroes stated, “Free competition is not an end in itself – it is a means to an end”. The end is of course increase social wellbeing. Therefore, obviously that the elimination of R&D’s duplication costs increases welfare, as well as the creation of the innovation, as it becomes more attractive under cooperative R&D. But what I wanted to add is that collusion, even in the product market, does not necessarily lead to a decrease on welfare. We already had situations in the EU where the authorities allowed firms to collude in order to avoid letting the entire industry going out of market, due to a temporarily unexpected shock. Similarly, imagine that firms are launching a new product in the market, derived from a RJV. It may be the case that without cooperation firms may end up cannibalizing their innovation. That is, without taking advantage of the learning by doing benefits that are just achieved with time (the learning curve), and due to uncertainty regarding preferences for a new product, it may not be in their interest to take the risk. As a result it might be that an initial collusion in the product market favours the creation of the innovation that would not otherwise get to market, which is a lost opportunity of increasing welfare. I am obviously not saying that collusion is always good, I am just stressing that it is not always necessarily bad. The EC has enough discretionary power to decide what kind of collusion I acceptable or not, so it must always be taken in a case by case basis.

In my opinion, horizontal cooperation agreements can lead to economic benefits. They allow participating firms to avoid the duplication of budgets, to combine complementary resources and to internalize knowledge spillovers. These agreements would lead to innovative goods and lower production costs. The objective of firms entering in cooperation for a new product is to accelerate the entry of the product in the market. In addition, these firms intend to reduce costs by pooling the R&D results of the partner and therefore generate synergies. However, when firms enter in such a cooperation, they must bear the risk that the partner will be able to introduce the new product at the same time, thereby intensifying market competition. R&D cooperation depends on the market structure and on the degree of the product differentiation. Moreover, the degree of cooperation depends on several parameters namely spillovers and the number of firms in the market.

Firms take their decisions in a two-stage model. At the first stage, firms set cooperatively or non-cooperatively R&D and in the second stage, firms decide cooperatively or non-cooperatively in the product market. At the second stage, firms must find the optimal degree of cooperation. In fact, there is a link between the degree of cooperation and the degree of collusion especially in the case of multimarket contact. Usually, firms find easily a way to make an imperfect collusion that is between zero collusion and total collusion than a complete one to make it sustainable. This collusion can be explicit or even tacit.

The authority of competition must define the objective that should be achieved and on this bases must find the most appropriate legal instrument. Actually, there are two objectives in the balance, on the one hand, maximizing total surplus and on the other hand, maximizing consumer surplus. Since the standard in antitrust is consumer surplus, then this kind of cooperation may be harmful but pure R&D agreement are positively considered by the EU competition policy but difficult in practice to implement.

From my point of view, the R&D cooperation agreements can help SMEs that have an incentive to innovate and tend to have an high R&D productivity compared to larger firms. This leads to look beyond their «walls» and find partners to complement their internal R&D efforts. This way will allows SMEs committing in cooperation for many reasons, namely acquiring missing knowledge, complementary resources and reducing costs.

Unfortunately, there is no perfect policy. In my opinion, competition authorities must find a compromise between efficiency and market power. A particularly tricky task for the competition authorities is to find the optimal degree of cooperation to avoid firms to find their optimal degree of collusion. The competition authorities has to be aware of the possibility that firms collude where they are direct competitors, they are more suspect than non-competitors firms. I would like to add that if firms have a strong incentive to collude in the product market, they will do it even if R&D horizontal agreement are not allowed by the EU authorities.

In the case of an R&D cooperation that leads to collusion, I argue that penalty would be more heavy than in the case of a collusion without R&D horizontal agreement in the scope of the EU block exemption. I suggest that intense inspections should be directed at the firms that have a high risk of collusion when they engage in R&D cooperation must discourage firms to collude. However, it is not easy to find an optimal policy that takes into account all the factors simultaneously.

In conclusion, in the economics field, we cannot apply a one shot measure to solve a problem but we can implement a step by step regulation.

References:

– P. Teirlinck and A. Spithoven, Research collaboration and R&D outsourcing: Different R&D personnel requirements in SMEs, Technovation 33, pp. 142-153.

– A.L. Lòpez and X. Vives, R&D Cooperation, Spillovers and Antitrust Policy, 2013.

– R. Ruble and B. Versaevel, Market shares, R&D agreements, and the EU block exemption, International Review of Law and Economics.

– L.M.B. Cabral, R&D cooperation and product market competition,International Journal of Industrial Organization, 18, 2000, pp.1033–1047.

When we are in a very competitive market, we don’t need to regulate the cooperation between the different firms, due to the fact that there is no risk of collusion. Their market shares are not enough important to impact on pricing or quantities on the market.
Cooperation between competitors could be a good thing, they don’t duplicate the same costs, which is negative, it’s a kind of brainstorming where different specialists share idea to innovate and find efficient way to produce and distribute their goods. The consumer welfare could also be increased this way.
The paid for research is not a good extension of the cooperation in my point of view when we deal with big firms which get big market shares because they can agree to find new ways to deter competition to get a less competitive market and charging higher prices.
The markets are moving constantly, as European firms compete with the rest of the world, they have to be efficient, so the commission made a good decision by implementing the R&D cooperation between firms. And by the same way, it’s a kind of protection of people to get their job, talking about “delocalization”.
Giving incentives to denounce a collusion, then the firms colluding will have to pay a high fine and the one who help to disintegrate the collusion will be relax or pay a little fine.

As a response to Lukas Kelling saying it was a good idea to extend the R&D Bloc Exemption to take into account also paid-for research I would say that I agree when looking at it strictly. But I think that the problem lies deeper behind this. As the author of this article writes, R&D cooperation only is good for social welfare if it doesn’t lead to collusion on the market afterwards. Yet it seems through the study of Sovinsky and Helland (2012) that it is not always the case. As a lot of other economic problems, it certainly depends on the industry that is analyzed. But it still shows that a lot of firms are interested in more than just being in a Research Joint Venture.

I think the European Commission should review its policy and conduct a thorough analysis of how the two forces, the increase in social wellfare due to more efficient R&D spendings vs. the loss of wellfare do to collusion, balance each other. According to me, they should try to measure if the increase of social wellfare is larger than the decrease due to collusive practices. Maybe there are situations where it still is beneficial for society that firms cooperate on R&D and collude on the market. I think the legislation should take that into account too.

In addition, I think there are other ways to favour R&D cooperation while limiting the temptation to collude. One would be to give attractive legislation (tax cuts, subsidies,…) to RJV’s while in the meantime going on with a hard anti-collusion policy. This would give firms incentive to develop jointly R&D projects while competing on the consumer market.