R&D Returns, Market Structure and Research Joint Ventures

A two period R&D symmetric Cournot duopoly game with linear demand and costs is analysed under linear (or more general) returns to scale in process R&D. Subgame-perfect equilibrium may call for one firm to fully innovate while the other firm remains just as before. The outcome is a polar duopoly or monopoly (one firm endogenously exiting. Two RJV schemes are compared to the noncooperative solution. Due to built-in symmetry, a joint lab RJV does not always lead to the best performance. Nonetheless, whenever a joint lab innovates, it yields the highest welfare. Overall, our findings differ substantially from those based on strongly decreasing R&D returns and symmetric outcomes.