Cooperative R&D with durable goods

This paper analyzes the effect of the durability of the good produced by a duopolistic industry on research and development investment in the presence of spillovers. We show that the critical spillover level from which cooperation in R&D increases the level of investment is higher when firms produce durable goods and sell at least some units of their output than when firms produce non-durable goods. Moreover, with R&D cooperation investment is highest with renting firms and lowest with renting-selling firms. These findings indicate that R&D cooperation is more difficult to justify when firms produce durable goods in the presence of intertemporal inconsistency problems.