Effects of One-way Spillovers on Market Shares, Industry Price, Welfare, and R&D Cooperation

With one-way spillovers, the standard symmetric two-period R&D model leads to an asymmetric equilibrium only, with endogenous innovator and imitator. We show how R&D decisions and measures of firm heterogeneity - market shares, R&D shares, and profits - depend on spillovers and on R&D costs. While a joint lab always improves on consumer welfare, it yields higher profits, cost reductions and social welfare only under extra assumptions, beyond those required with multi-directional spillovers. Finally, the novel issue of optimal R&D cartels (with an endogenous spillover parameter) is addressed. In particular, the latter can be zero under some conditions.