DP1985 | To Reveal or Not to Reveal - The Case of Research Joint Ventures with Two-Sided Incomplete Information

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Firms' incentives to form research joint ventures (RJVs) are analysed in an incomplete information framework when technological know-how is private information. Firms first decide on cooperation and information revelation and then compete for a patent. Provided that spillovers exist in the case of unilateral revelation of know-how, it can be shown that non-cooperation is always an equilibrium. If competition is in a second-price auction with positive minimum R&D requirements this equilibrium is unique for high spillovers. Cooperation can occur for low spillovers. For certain parameters there exists an equilibrium in which only firms with low know-how cooperate.