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The Design of Vertical R&D Collaborations
Author(s) -
Herbst Patrick,
Walz Uwe
Publication year - 2017
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/ecca.12183
Subject(s) - downstream (manufacturing) , industrial organization , productivity , business , competition (biology) , contractible space , investment (military) , vertical integration , microeconomics , economics , marketing , ecology , mathematics , combinatorics , biology , politics , political science , law , macroeconomics
Suppliers play a major role in firms' innovation processes. We analyse ownership and technology choices in vertical R&D collaborations. Under non‐contractible R&D outcomes, trade‐offs arise between R&D specifically designed towards a manufacturer (increasing investment productivity) and a general technology (hold‐up reduction). Stronger downstream competition shifts optimal ownership towards the supplier and favours contracting over ownership rather than specific performance contracts. Downstream ownership is combined with the specific technology if the supplier's expertise is more pronounced or the specific technology is more productive. Contracts incorporating exit clauses increase the gains from collaborations.