R&D spillovers and cartelization of industries with differentiated products

The objective of this article is to investigate the impact of research and development (R&D) spillovers on cartelization of industries characterized by differentiated products. For simplicity, we focus on the duopoly market in which firms compete according to the Stackelberg leadership model. Numerical analysis shows that as long as products offered on the market are at least slightly differentiated, it is beneficial for firms to cooperate at the R&D stage, and form a cartel at the final product market. The threat of cartelizing industry is not present only under fully homogenous goods’ competition. But, since the vast majority of product markets trade in differentiated goods, tightening cooperation in R&D generates a serious threat of industry cartelization. Thus, significant antitrust issues emerge.