Cooperative R&D for a New Product under Convex Production Costs

In a duopoly with a stochastic non-tournament R&D process for a new product, we show that firms may prefer cooperative R&D under convex production costs even if there is no knowledge spillover, thus, providing a new reason for cooperative R&D. Cooperative R&D may increase expected consumer surplus and expected welfare compared to non-cooperative R&D. Convex production costs create the incentive for technology licensing ex post R&D. In the presence of licensing ex post R&D, firms prefer joint profit-maximising R&D with the option for licensing ex post R&D, while consumers and society may prefer cooperative R&D. Our analysis provides some implications for vaccine research.