Market competition, R&D spillovers, and firms' cost asymmetry

We examine the effects of firms' cost asymmetry on R&D investments. We obtain five novel results. First, the social preference between noncooperative and cooperative R&D investments is independent of the degree of firms' cost asymmetry. Second, R&D investments of low-cost firms are larger than those of high-cost firms. Third, for a small spillover, noncooperative R&D investments have a U-shaped curve with the degree of market competition. Fourth, as market competition intensifies, a low-cost (high-cost) firm may decrease (increase) its noncooperative R&D investment. Fifth, the difference in profit between low-cost and high-cost firms increases with the degree of market competition.