Cooperation, R&D Spillovers and Antitrust Policy

We consider a model of process (cost-reducing) R&D investments with spillovers in Cournot oligopoly, and in which R&D cooperation cannot be disentangled from cooper- ation in the product market because of cross-shareholdings or because cooperation in R&D extends to cooperation in the product market. We characterize how R&D and output behave in response to a change in the degree of cooperation, and identify three distinct regions. We derive the threshold values of spillover above which some cooperation in both dimensions is optimal for welfare and consumers, and examine the optimal degree of cross-ownership or toughness of the antitrust policy. If the objective is to maximize total surplus then there is scope for cooperation in both dimensions when spillovers are su¢ ciently large (and the scope is larger the more .rms there are in the market), but if the objective is to maximize consumer surplus, then the scope for cooperation is greatly reduced. Furthermore, entry need not optimally induce more cooperation under the consumer surplus standard.