A question central to R&D policy making is the impact of competition on cooperation. This paper builds a theoretical foundation for the dynamics of knowledge sharing in private industry. We model an uncertain research process and ask how the incentives to license intermediate steps to rivals change over time as the research project approaches maturity. Such a dynamic approach allows us to analyze the interaction between how close the ?rms are to product market competition and how intense that competition is. We uncover a basic dynamic of sharing such that ?rms are less likely to share as they approach the product market. This dynamic is driven by a trade-o¤ between three e¤ects: the rivalry e¤ect, the duplication e¤ect and the speed e¤ect. We show that this dynamic can be reversed when duopoly pro?ts are su¢ ciently low. We also explore the implications of the model for patent policy and R&D subsidies, and discuss under what circumstances such policies should be directed towards early vs. later stage research.
