Impacts of knowledge spillovers and cartelization on cooperative innovation decisions with uncertain technology efficiency

Cooperative innovation is a popular way for firms to pursue technological innovation and profits. Two important aspects, knowledge spillovers and cartelization, have a considerable impact on firms’ cooperative innovation performance. This paper studies cooperative innovation decisions in a two-level supply chain including an upstream firm and a downstream firm with knowledge spillovers (natural or perfect) and uncertain technology efficiency. To investigate the effects of knowledge spillovers and cartelization, four innovation modes, namely, non-cooperative innovation, innovation cartel, research joint venture and research joint venture cartel, are examined. We obtain several findings: (i) enhancing either firm’s knowledge spillover benefits both firms and the whole supply chain, and the profits of the firms and the chain reach the maximum when the two firms perfectly share their knowledge; (ii) cartelization can help upstream and downstream firms achieve a win–win scenario in a Pareto zone, but the supply chain always benefits; and (iii) both knowledge spillovers and cartelization are beneficial for the supply chain when the demand elasticity is not too small, specifically, with the research joint venture cartel mode being the best and the non-cooperation mode being the worst. Moreover, we extend the model to involve a general probability distribution of stochastic technology efficiency and find that high uncertainty in technology efficiency leads to lower profit for the downstream firm; we also relax a general cost function of technological innovation and discuss the robustness of the theoretical results.