Research Joint Ventures as a Tool of Strategic Trade Policy

This paper combines the analysis of the R&D cooperation with the strategic trade policy theory. By introducing endogenous formation of research joint venture, we investigate when the research joint venture works as a tool of strategic trade policy, and provide its welfare implications. If R&D cooperation by forming a research joint venture is made only in the home country and not in the foreign country, the home country benefits but foreign country hurts in terms of national welfare. This is a robust result in the sense that it holds regardless of market structure. We also find that given a research joint venture is formed in each country (i.e., two research joint ventures in the world), both the home and the foreign countries may hurt depending on market structure, which implies a ‘prisoner's dilemma' result