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Wen-chung Guo
''Profitability, success probabilities, and incentives for cooperative R&D''
( 2011, Vol. 31 No.1 )
As is widely conjectured, duopolists form a cost-sharing cooperative R&D alliance to develop a product - regardless of the probability of research success is either very high or very low. This study establishes that most low probabilities of research success cannot induce a financially successful cooperative R&D alliance. Incorporating the constraints in non-negative expected profits eliminates more than 95% probability of the parameter space where the probability of success is lower than 0.5. Our results further demonstrate that non-negative expected profits are attainable when the monopoly profit is not large in relation to duopoly profits, the fixed cost of R&D investment is low and the demand is large.
Keywords: Cooperative R&D; uncertainty; profitability
JEL: O3 - Technological Change; Research and Development: General
D4 - Market Structure and Pricing: General
Manuscript Received : Nov 08 2010 Manuscript Accepted : Jan 14 2011

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