Market shares, R&D agreements, and the EU block exemption

International audienceRegulation (EC) No 1217/2010 on the application of Article 101(3) of the Treaty on the Functioning of theEuropean Union to categories of R&D agreements exempts horizontal R&D agreements from antitrustconcerns when the combined market share of participants is low enough. We examine the theoreticalbasis for this criterion by extending existing models so that a subset of firms innovates and participates inan R&D cooperation agreement. We show that the incentive to increase innovation depends on a complexset of effects. We identify one, the outsider effect, that can lead firms to increase R&D under cooperationprecisely when their combined market share is high. In a general model in which all firms innovate, wealso find that R&D agreements can be more beneficial at higher market shares. We argue that existingtheory therefore does not support limiting the exemption to low market shares