Optimal R&D disclosure in network industries

Abstract

The R&D literature framed in a strategic context shows two unpleasant outcomes for the public goods nature of knowledge: 1) the private R&D activity results in under-investment (with no information leakage – no spillovers) or over-investment (with information leakage – positive spillovers) compared to the social optimum because of appropriability, and 2) the R&D outcome shared by each firm is lower than full disclosure, as innovators are not rewarded for disseminating information. This article departs from De Bondt et al. (1992), who consider the cost-reducing (process) innovation duopoly à la d’Aspremont and Jacquemin (1988, 1990) with non-network goods showing that the (second-best) social optimum requires partial disclosure if products are homogeneous. Unlike these studies, this work finds that, in a network industry, full disclosure becomes optimal depending on the extent of the network externality. Results offer clear policy implications.