Firm Heterogeneity and the Pattern of R&D Collaborations

We consider an oligopoly setting in which firms form pairwise collaborative links in R&D with other firms. Each collaboration generates a value that depends on the identity of the firms that collaborate. First, we provide properties satisfied by pairwise equilibrium networks and efficient networks. Second, we use these properties in two types of situation (1) there are two groups of firms, and the value of a collaboration is higher when firms belong to the same group; (2) some firms have more innovative capabilities than others. These two situations provide clear insights about how firms heterogeneity affects both equilibrium and efficient networks. We also show that the most valuable collaborative links do not always appear in equilibrium, and a public policy that increases the value of the most valuable links may lead to a loss of social welfare.