Research joint ventures: A cooperative game for competitors

A firm considering a research joint venture with its competitors, balances potential benefits of cooperation with conflicting interests. I model firms as players in a game in coalitional form – the Joint Venture Game – and study asymmetries with respect to ability to fund, market power, and technological capital. In a duopoly between firms that are symmetric in all respects, I show that cooperation is always optimal. When firms are asymmetric, cooperation may not be optimal for a firm with an advantage when the other firm can be outright barred from entry into the market. Cooperation may also not be optimal for a firm with a disadvantage, when that firm can be barred from making a financially viable entry into the market. Finally, in an oligopoly, the necessary conditions for cooperation imply that optimally, all firms which cannot be excluded from competing in the product market should cooperate in a single joint venture.