An experimental contribution to the revision of the guidelines on research and development agreements

The European Commission is working on a revision of its Guidelines on Research and Development Agreements. On this occasion, this note surveys the existing experimental evidence. Experiments add a number of additional arguments to the normative assessment. R&D agreements have a much smaller effect on later competition in the product market if they serve as a substitute for incomplete (legal) protection of innovation effort. They may help firms settle the resulting fairness issue, and stay away from investment wars. Using the results from 107 published experiments on oligopoly, a meta-study shows that clearing an R&D agreement can be beneficial since it removes the additional collusion incentive resulting from fear that, through successful innovation, competitors might gain an advantage. This is the case if the opposite market side has countervailing power, and the more market conditions are stable. By contrast, the meta-data suggests that R&D agreements increase the risk of collusion in the product market if products are substitutes, if capacity cannot immediately be extended, if market participants may communicate, and if they are experienced; the latter two conditions are very likely to hold in the field.