The Role of Innovation in Asymmetric Duopoly

This study models research joint venture (RJV) innovations and market efficiency. If the RJV reduces both firms’ per unit cost of production by a fixed dollar amount, both firms benefit from the RJV whenever society also benefits. If the RJV produces an innovation that reduces both firms’ per unit cost of production by a fixed percentage, however, then the social and private effects depend on the degree of asymmetry between the two firms. If the cost gap is large between the asymmetric firms, the RJV will not be formed without external financial compensation because the low-cost firm would lose its competitive advantage