Does R&D Cooperation Facilitate Price Collusion? An Experiment

Abstract

In the paper, the impact of R&D cooperation on prices in experimental duopoly markets is examined. As a theoretical benchmark for the experiment, a two-stage duopoly model with an R&D stage with technological spillovers and a pricing stage is used. For two scenarios of technological spillovers (no versus complete spillovers), a treatment where it is possible to credibly commit to an R&D contract and a baseline treatment without binding contract possibilities, are run. Findings are that, in general, prices are between the subgame perfect Nash and the cooperative level. Further, for both spillover levels prices are higher in periods where R&D contracts are committed to, than in other periods, and to a lesser extent compared to the baseline treatments.

Keywords: R&D, duopoly, experiment, price collusion

JEL Classification: C90, L13, O31