SEARCH

SEARCH BY CITATION

I examine the question whether cooperation in R&D among firms producing similar products leads to product market collusion. Suppose that firms engage in a stochastic R&D race while maintaining the collusive equilibrium in a repeated-game framework. Innovation under non-cooperative R&D leads to an inter-firm asymmetry, destabilizing collusion in pre-discovery and post-discovery periods. Innovation sharing under cooperative R&D preserves the symmetry and also increases total profit, thereby facilitating collusion. However, welfare may increase with cooperative R&D. I also examine the condition for collusion under licensing and compare the results.