The welfare effects of cooperative R&D in oligopoly with spillovers

This paper provides a more complete characterization of the welfare effects of cooperative cost-reducing R&D investments in Cournot oligopoly with spillovers. I show that R&D cooperation reduces both R&D spending and social surplus when the spillover rate in R&D is neither sufficiently high nor sufficiently low. As the elasticity of the slope of the inverse demand function increases, however, the set of spillover rates over which cooperative R&D reduces social welfare shrinks, and in the limit, cooperative R&D is socially beneficial for all spillover rates.