“Whether Pre-competition Cooperation or Full Cooperation on R&D Maximizes Overall Industry Profit”

Hsueh-Jen Hsu, Yuan Ze University, Taiwan

New product innovation comprises research and development. Firms are allowed to cooperate on R&D but not on product market, which downgrades the importance of full cooperation. However, it is not rare to see governments supporting firms to cooperate on both stages. This study investigates when full cooperation has higher overall industry profit than pre-competition cooperation. By assuming exponential distribution and unit time R&D investment, literature concluded that pre-competition cooperation must have higher overall industry profit than that of full cooperation. Instead, this study assumes that the success time at development stage follows uniform distribution and invests once in the beginning of development stage. The advantage and disadvantage of pre-competition are rich of competition efficiency and have overinvestment plus duplicating investment respectively. Uniform distribution and fixed R&D investment downscale the advantage and enlarges the disadvantages of pre-competition cooperation respectively. This study finds that when the effort to shorten the average length of time in designing product has high return and the product designing is less complicate, the overall industry profit of full cooperation is greater than that of pre-competition cooperation even if the competition in product market between cooperative partners is intense.