COOPERATION VS. COMPETITION IN RESEARCH-AND-DEVELOPMENT - THE ROLE OFSTABILITY OF EQUILIBRIUM

We consider a model in which firms first choose process R&D expenditur es and then compete in an output market. We show the symmetric equilib rium under R&D competition is sometimes unstable, in which case two as ymmetric equilibria must also exist. For the latter, we find, in contr ast to the literature that total profits are sometimes higher with R&D competition than with research joint venture cartelization (due to th e cost asymmetry of the resulting duopoly in the noncooperative case). Furthermore, these equilibria provide another instance of R&D-induced firm heterogeneity.