In defense of trusts: R&D cooperation in global perspective

We re-examine the trade-off between the benefits of allowing firms to cooperate in R&D and the increased potential for product market collusion that R&D cooperatives bring about. For that we utilize a dynamic model of R&D whereby we do not restrict ourselves to a local analysis. That is, initial marginal costs may exceed the choke price such that R&D efforts can take place prior to production. Our framework yields four distinct scenarios, which includes the situation where firms continue to invest in developing further existing technologies although these technologies are destined to leave
the market. We show that an extension of the cooperative agreement towards collusion in the product market is not necessarily welfare reducing: the full cartel develops further a wider range of initial technologies, it invests more in R&D such that process innovations are pursued more quickly, and it maintains a wider range of technologies.