Cooperative and Non-Cooperative R&D in Oligopoly: Strategic Substitutes and Complements

The positive and normative effects of cooperative R&D are examined vis-a-vis non-cooperative R&D, socially second-best R&D in terms of a two-stage model of oligopolisiic competition with product differetiation. It is shown that both non-cooperative and cooperative R&D levels are socially insufficient at the margin in terms of first-best, as well as second-best, criterion if firms compete in terms of prices, irrespective of the number of firms and the extent of R&D spillovers.