Endogenous Firm Asymmetry and Cooperative R&D in Linear Duopoly with Spillovers

In a linear model of cost reducing R&D/Cournot competition, firm asymmetry is shown to be sustainable as subgame perfect Nash equilibrium with R&D competition only if the productivity of research is sufficiently large relative to the benefits from imitation. In such a case, industry-wide cost reduction and firms asymmetry are increasing and decreasing functions of the spillover rate, respectively. In the absence of spillovers, a symmetric joint lab generates higher consumer surplus and social welfare than a pair of asymmetric competitors. If spillovers are not too small, asymmetric R&D competition is advantageous to consumers, but not to firms