Faculty of Economics and Business Administration Publications Database

The Design of Vertical R&D Collaborations

Herbst, Patrick
ISSN-Print: 0013-0427
Year: 2015
Keywords: Managing innovations; Vertical R&D collaboration; Choice of technology

Suppliers play a major role in downstream firms’ innovation processes. We analyze the choice of ownership and technology in vertical research and development (R&D) collaborations. Under non-contractible R&D outcomes, there is a trade-off between R&D specifically designed towards a manufacturer (increasing investment productivity) and a general technology (hold-up reduction). More intense downstream competition shifts optimal ownership towards the supplier and favors contracting over ownership rather than specific performance contracts. Downstream ownership is combined with the specific technology if the supplier’s expertise is more pronounced or the specific technology is more productive. Contracts incorporating exit clauses increase the gains from collaborations.