THE ROLE OF INFORMATION SHARING IN COOPERATIVE RESEARCH-AND-DEVELOPMENT

This paper develops a model in which R&D cooperation enables firms to increase the probability of discovering a new product by sharing information about research strategies and outcomes. Numerical computations of equilibrium show that cooperation tends to increase in the underlying probability of research success, total surplus generally increases as more firms cooperate, and cooperation in equilibrium never exceeds that which maximizes total surplus. However, when the probability of an innovation's success is relatively low, no cooperation occurs, nor will much be socially desired. Finally, self-imposed limits on membership in the cooperative entity tend to reduce total surplus.