The Design of Vertical R&D Collaborations


Herbst P & Walz U (2017) The Design of Vertical R&D Collaborations. Economica, 84 (333), pp. 54-77.

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.

Economica: Volume 84, Issue 333

Publication date31/01/2017
Publication date online08/04/2016
Date accepted by journal31/03/2016
PublisherWiley-Blackwell for the London School of Economics and Political Science