R&D cooperation and collusion: The case of joint labs

In the standard two-stage framework of R&D/product market competition, the present note compares the performance of full cooperation (firms conduct R&D in a joint lab and collude in the product market) and full competition (firms compete in R&D as well as in the product market). The paper shows that (i) full cooperation leads to better results in terms of R&D efforts compared with non-cooperation; (ii) collusion at the production stage may increase both producers' and consumers' surplus especially when the degree of spillovers is not too high and the products are not homogeneous; (iii) the gains in terms of social welfare from full cooperation increase when the efficiency of R&D decreases.