Abstract

Starting from the premise that firms are distinct in terms of their capacity to create innovations, this article explores the rationale for R&D cooperation and the choice between alliances that involve information sharing, cost sharing or both. Defining innovative capability as the probability of creating an innovation, it examines firm strategy in a duopoly market, where firms have to decide whether or not to cooperate to acquire a fixed cost R&D infrastructure that would endow each firm with a firm-specific innovative capability. Furthermore, since emerging industries are often characterized by high technological uncertainty and diverse firm focus that makes the exploitation of spillovers difficult, this article focuses on a zero spillover context. It demonstrates that asymmetry has an impact on alliance choice and social welfare, as a function of ex-post market competition and fixed costs of R&D. With significant asymmetry no alliance may be formed, while with similar firms the cost sharing alliance is dominant. Finally, it ascertains the settings under which the equilibrium outcome is distinct from that maximizing social welfare, thereby highlighting some conditions under which public investment in a technology park can be justified.