Extended cooperation in research joint ventures and welfare

The National Cooperative Research and Production Act extended the antitrust immunity to RJVs dealing up to the production stage. Such a wide RJV breadth has generated the widespread concern of an increase in the product market degree of collusion, which may reduce welfare. We assume that an RJV dealing up to the production stage allows for (tacit) collusion, while a RJVs focused on the research stage only does not. In our model, the wider RJV hastens innovation not only because it implies savings in fixed costs – which is socially valuable in itself – but also due to the perspective of collusive profits. This comes to the cost of an increased distortion in the final product market. When a process innovation is introduced in a Cournot market, a wider RJV is welfare enhancing only when the Antitrust Authority is strong, so that the increase in distortion is limited, and when the size of the technical improvement is large.