This paper analyses endogenous formation of technology sharing coalitions with asymmetric firms. Coalition partners produce complementary technology advancements, although firms do not co-operate on R&D investment level or in the product market. The equilibrium coalition outcome is either between the two most efficient firms, or a coalition with all three firms. The two-firm coalition is the preferred outcome of a welfare maximising authority if ex ante marginal cost is sufficiently high, and the three-firm coalition is preferred otherwise. Furthermore, we show that the equilibrium outcomes result in the lowest total R&D investment of all possible outcomes. Aircraft engine manufacturing provides a case study, and indicates the importance of antitrust issues as an addition to the theory.
Clark, Derek J.; Pereau, Jean Christophe(Working paper; Arbeidsnotat, 10-Jan-2008)
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Abstract:
We consider bargaining between a number of players that are all
essential in creating a surplus. One of the players is dominant in the
sense that it ultimately decides whether the surplus will be created.
The other players have an incentive to get a large share of the pie
for themselves, but leaving enough for the dominant firm that it finds
it profitable to create the surplus. Hence, the smaller players have
preferences over who they take their share from. When the dominant
player makes the first offer in an alternating offer framework,
we analyse whether it should conduct negotiations sequentially with
some grouping of players, or simultaneously. We demonstrate that
the dominant player will prefer simultaneous negotiation. The other
players would prefer to negotiate early with the dominant one, and
then to see remaining rivals negotiate simultaneously.
Description:
This paper is part of the project "The knowledge-based society"
In a context of bilateral bargaining between an upstream supplier
and several downstream buyers, this note determines the conditions
under which two buyers have an incentive to merge depending on
whether (i) the bargaining process is simultaneous or sequential and
(ii) the post merger buyer becomes pivotal or not. We also determine
conditions under which the players will prefer to bargain simultaneously
or in sequence.