Strategic Timing in R&D Agreements

We study the endogenous formation of R&D agreements in a R&D/Cournot duopoly model with spillovers where also the timing of R&D investments is endogenous. This allows us to consider the incentives for firms to sign R&D agreements over time. It is shown that, when both R&D spillovers and investment costs are sufficiently low, firms may find difficult to maintain a stable agreement due to the strong incentive to invest noncooperatively as leaders. In this case, the stability of an agreement requires that the joint investment occurs at the initial stage, thus avoiding any delay. When spillovers are sufficiently high, the coordination of R&D efforts becomes a profitable option, although firms may also have an incentive to sequence noncooperatively their investment over time. Finally, when spillovers are asymmetric and knowledge mainly leaks from the leader to the follower, investing as follower may become extremely profitable, making R&D agreements hard to sustain unless firms strategically delay their joint investment in R&D.