Effects of One-Way Spillovers on Market Shares, Industry Price, Welfare, and R\&D Cooperation

With one-way spillovers, the standard symmetric two-period R&D model leads to an asymmetric equilibrium only, with endogenous innovator and imitator roles. We show how R&D decisions and measures of firm heterogeneity -- market shares, R&D shares, and profits -- depend on spillovers and on R&D costs. While a joint lab always improves on consumer welfare, it yields higher profits, cost reductions and social welfare only under extra assumptions, beyond those required with multi-directional spillovers. Finally, the novel issue of optimal R&D cartels is addressed. We show an optimal R&D cartel may seek to minimize R&D spillovers between its members.