Industry profit maximizing R and D networks

In this paper, we extend the model of R and D network formation by Goyal and Moraga-Gonzàlez (2001) by allowing for imperfect spillovers among linked firms. We show that the complete network maximizes industry profit if spillovers for linked firms are below a threshold level. Furthermore, this threshold level turns out to be high in absolute terms in concentrated markets: when the number of firms is low, small departures from the case of perfect spillover imply that firms' private incentives to form links cannot be excessive with respect to their collective interest. This implies that the Goyal and Moraga-Gonzalez argument, for which excessive private incentives could explain the empirical stylized fact of R and D alliances instability, is no longer valid in these cases.