Review of Industrial Organization 15: 253–262, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.
A Note on Endogenous Spillovers in a
Non-Tournament R&D Duopoly
Department of Economics, University of Nottingham, University Park, Nottingham NG7 2RD,
Abstract. The paper analyzes a simple non-tournament model of R&D where ﬁrms are engaged in
cost-reducing innovation. It is shown that when spillovers of information are treated as endogenous
ﬁrms never disclose any of their information when choosing their R&D non-cooperatively. Under
cooperative R&D, ﬁrms will always choose to fully share their information, i.e., a research joint
venture will operate with a maximal spillover value.
Key words: R&D duopoly, non-tournament model, endogenous spillovers.
JEL Classiﬁcation: 030, L13, D43.
Empirical evidence suggests that the number of cooperative agreements in R&D
have increased substantially since the 1980s; for example, see Chesnais (1988) and
Hagedoorn and Schakenraad (1992). These cooperative arrangements include re-
search joint ventures (RJVs), research consortia, cross-licensing and various types
of technology trading or information-sharing agreements. Technology policy in
the European Union (EU) provides incentives for cross-border R&D cooperative
agreements between ﬁrms and between ﬁrms and research institutions. The encour-
agement of coordinating R&D activities, the establishment of research projects
and the subsidization of the research costs associated with cooperative R&D up
to 50% have been used as policy tools by the EU, under the umbrella of the block
exemption from Article 85 of the Treaty of Rome. In the United States, cooperative
R&D is given favourable treatment under the National Cooperative Research Act
of 1984 (and its recent amendment, NCRPA) along with other measures such as
R&D tax credits, the implementation of the ‘information highway’ scheme and so
on. In particular, the NCRA stipulates that ﬁrms conducting approved joint research
This paper is part of the research project “Contracts and Incentives in Research Joint Ventures”
funded by the University of Nottingham. The hospitality of the Department of Applied Economics,
Catholic University of Leuven, where this paper was written is gratefully acknowledged. I also thank
John Beath, David Ulph and especially the Editor, Geoffrey Shepherd, for their helpful comments.
The usual disclaimer applies.