《《absorptive capacity and strategic Ramp;D investment revisited》.pdf

International Journal of Industrial Organization 21 (2003) 1091–1109 /locate/econbase M eet me halfway but don’t rush: absorptive capacity and strategic RD investment revisited ¨ * Leo A. Grunfeld NUPI-Norwegian Institute of International Affairs, P.O. Box 8159, Dep . N0033, Oslo, Norway Received 22 January 2001; received in revised form 13 August 2002; accepted 11 April 2003 Abstract In this paper, we analyse how RD investment decisions are affected by RD spillovers between firms, taking into consideration that more RD investment improves the ability to learn from competing firms—the so-called absorptive capacity effect of RD. Contrary to earlier studies, we show that absorptive capacity effects of own RD do not necessarily drive up the incentive to invest in RD. This only happens when the market size is small or the absorptive capacity effect is weak. Otherwise, firms will actually choose to cut down on RD. Furthermore, absorptive capacity effects also increase the critical rate of spillovers that determines whether a research joint venture generates more RD investment than a non-cooperative setting. Finally, we show that strong learning effects of own RD are not necessarily good for welfare. Moreover, if the market size is large, welfare will be at its highest when the learning effect is small.  2003 Elsevier B.V. All rights reserved. JEL classification : L13; O31; O32; O38 Keywords : ; RD investment; RD spillovers; absorptive capacity; RJV 1. Introduction The title of this paper is a modification of the title used by Kamien and Zang *