Cooperative R&D Problem and Horizontal Merger

We have some questions for welfare effects of diverse market structures in which cooperative research efforts are performed. That is, we are interested in whether RJVs are desirable in horizontal merger case. Numerical analysis reveals negative welfare effect. This paper also shows the government should watch the efficiency gains for society from merge of firms colluding for output and performing R&D in oligopolistic market. Total efficiency gains can outweigh the deadweight loss from merger. Hence, it may be desirable for government to allow(cooperative) R&D in addition to merge rather than prohibiting merger itself. Finally, this paper points out important implication for the “puzzling phenomenon of merger”(Salant et al., 1983). If firms less than 80% collude and perform R&D, government need not care this merger seriously because so much efficiency gain goes to consumers due to price decrease and production increase from cost reduction.