RESEARCH JOINT VENTURES: A BARRIER TO ENTRY?

This paper examines a one-shot game where two symmetric incumbents are faced with possible entry into an industry, where firms may differ in the efficiency of R&D in reducing marginal production costs. The decision facing the incumbents is whether to compete at the R&D stage or to form a RJV. R&D competition may imply that remaining in the market is not viable for the incumbents and the entrant is a monopolist. Conversely, RJV formation may make entry unprofitable and, possibly, increase welfare. The effect on welfare will depend on whether output is exported in its entirety or consumed domestically.