Horizontal and Vertical R&D Cooperation

This paper introduces a second, vertically related industry into the usual one-industry oligopoly framework of cooperative R&D investment between firms operating on the same product market. R&D efforts are affected by intra- and inter-industry R&D spillovers. Horizontal and vertical R&D cooperation scenarios are compared to R&D competition. It turns out that vertical R&D cooperation is usually the only stable equilibrium in the sense that no firm has an incentive to chose any other R&D scenario. Empirical implications concerning the relationship between R&D intensities and R&D spillovers are derived and empirical evi-dence is given using data of German manufacturing firms.