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WISSENSCHAFTSZENTRUM BERLIN FÜR SOZIALFORSCHUNG discussion papers SOCIAL SCIENCE RESEARCH CENTER BERLIN FS IV 98 - 15 The Incentives to Form Research Joint Ventures: Theory and Evidence Lars-Hendrik Röller* Mihkel M. Tombak** Ralph Siebert* * Wissenschaftszentrum Berlin für Sozialforschung ** Helsinki School of Economics December 1998 ISSN Nr. 0722 - 6748 Forschungsschwerpunkt Marktprozeß und Unter- nehmensentwicklung Research Area Market Processes and Corporate Development

WISSENSCHAFTSZENTRUM BERLIN FÜR … · ABSTRACT The Incentives to Form Research Joint Ventures: Theory and Evidence by Lars-Hendrik Röller, Mihkel M. Tombak and Ralph Siebert *

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WISSENSCHAFTSZENTRUM BERLINFÜR SOZIALFORSCHUNG

discussion papersSOCIAL SCIENCE RESEARCHCENTER BERLIN

FS IV 98 - 15

The Incentives to Form Research JointVentures: Theory and Evidence

Lars-Hendrik Röller*Mihkel M. Tombak**Ralph Siebert*

* Wissenschaftszentrum Berlin für Sozialforschung

** Helsinki School of Economics

December 1998

ISSN Nr. 0722 - 6748

ForschungsschwerpunktMarktprozeß und Unter-nehmensentwicklung

Research AreaMarket Processes andCorporate Development

Zitierweise/Citation:

Lars-Hendrik Röller, Mihkel M. Tombak, Ralph Siebert, The Incentivesto Form Research Joint Ventures: Theory and Evidence, DiscussionPaper FS IV 98 - 15, Wissenschaftszentrum Berlin, 1998.

Wissenschaftszentrum Berlin für Sozialforschung gGmbH,Reichpietschufer 50, 10785 Berlin, Tel. (030) 2 54 91 - 0

ABSTRACT

The Incentives to Form Research Joint Ventures: Theory and Evidence

by Lars-Hendrik Röller, Mihkel M. Tombak and Ralph Siebert*

The literature on research joint ventures (RJVs) has emphasized internalizing spilloversand cost-sharing as motives for RJV formation. In this paper we develop two additionalexplanations: product market complementarities and firm heterogeneity. We analyze amodel of RJVs with asymmetric firms and differentiated products. We then test thesevarious explanations for RJV formation by estimating an endogenous switching modelusing data now available through the U. S. National Cooperative Research Act.

ZUSAMMENFASSUNG

Anreize, ein Forschungs-Joint Venture zu gründen

Die Literatur über Forschungs-Joint-Ventures (FJV) hat bisher die Internalisierung vonSpillovers und die Kostenaufteilung als primäre Motive, ein FJV zu gründen, hervor-gebracht. In diesem Beitrag werden zwei weitere Gründe angeführt: Produktmarkt-komplementaritäten und Unternehmensheterogenitäten. Wir analysieren ein Modell überFJV mit asymmetrischen Unternehmen und differenzierten Produkten. Anschließendtesten wir die verschiedenen Erklärungen, ein FJV zu gründen. Hierbei wird ein endo-genes „switching“ Modell geschätzt, in dem Daten von „U.S. National CooperativeResearch Act“ benutzt werden.

* We would like to thank Pedro P. Barros, Dietmar Harhoff, Morton Kamien, Ariel Pakes,

F. Michael Scherer, and Konrad Stahl for helpful comments and suggestions on a previousversion of the paper.

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24

Tables and Figures

Table 1a: Variable Definitions and Summary Statistics(pair-matches between firm i and firm j)

Variables Description N Mean Minimum Maximum

Pij Binary Variable indicating a RJVbetween firm i and firm j.

20,942 0.024 0 1

MEMBERS Number of members in a RJV (seethe text for precise definition)

20,942 3.101 0.693 4.927

RJVS Number of further RJVsundertaken by firms.

20,942 14.213 0 35.5

DASSET Measure of firms‘ difference inassets prior to forming an RJV.

20,942 1.242 0 1.667

r&d1 The change in firm-level R&Dintensities by forming an RJV.

502 -0.359 -19.050 8.936

r&d0 The average change in firm-levelR&D intensities (see the text forprecise definition).

20,440 0.095 -2.006 3.804

The Standard Industrial Classifications refer to the 1987 SIC-Revision. The monetary data are measured in million $-US in currentprices and are deflated by the producer price index taken from the Main Economic Indicators (OECD).

25

Table 1b: Sample Frequencies of Industry-Pairs (in percent)

INDUSTRIES

(2-digit SIC-Codes)

13Oil and GasExtraction

28Chemicals andAllied Products

29Petroleum andCoal Products

32Stone, Clay,and GlassProducts

35IndustrialMachinery

and Equipmt.

36Electronic and otherElectric Equipment

37Transportation

Equipment

38Instrumentsand Related

Products

13 Oil and GasExtraction

4.24

28 Chemicals andAllied Products

7.62 1.70

29 Petroleum andCoal Products

12.06 5.88 1.31

32 Stone, Clay, andGlass Products

1.36 0.67 0 0

35 IndustrialMachinery andEquipment

19.08 0 14.71 1.68 11.0

36 Electronic andother ElectricEquipment

0 0 0 0 5.96 0.76

37 TransportationEquipment

2.72 0 0 0.24 3.36 0 0

38 Instruments andRelated Products

0 0 0 0.26 3.74 0.90 0.53 0.21

26

Table 2: R&D Intensities

Estimates of Equation (12)Dependent Variable: r&d1

Estimates of Equation (13)Dependent Variable: r&d0

Variables Estimates Standard Errors Estimates Standard Errors

MEMBERS -1.366 0.332 -0.064 0.005

DASSET 11.800 2.070 - -

RJVS - - -0.151 0.008

SIC13 1.975 1.556 0.709 0.030

SIC28 7.072 1.739 0.202 0.032

SIC29 -0.708 1.739 0.448 0.109

SIC35 5.738 1.563 0.483 0.022

SIC36 6.131 1.765 0.646 0.023

SIC38 0.794 5855 0.254 0.155

COMP1328 10.791 2.667 0.401 0.022

COMP1329 3.095 1.391 0.508 0.023

COMP1332 11.197 4644 0.468 0.064

COMP1335 10.244 1.744 0.559 0.021

COMP1337 5.201 4.685 0.479 0.038

COMP2829 9.743 2.528 0.322 0.025

COMP2832 6.326 6.717 0.270 0.050

COMP2935 7.972 2.226 0.497 0.022

COMP3235 8.582 19.433 0.424 0.031

COMP3237 0.544 5450 0.369 0.627

COMP3238 9.792 6422 0.259 0.150

COMP3536 4.803 1.645 0.577 0.022

COMP3537 12.295 2.068 0.404 0.026

COMP3538 6.703 1.592 0.359 0.025

COMP3638 7.899 1.990 0.433 0.022

COMP3738 8.702 9245 0.274 0.151

SIGMA (1) 4.073 0.122 - -

RHO (1) -0.975 0.007 - -

SIGMA (0) - - 0.342 0.0007

RHO (0) - - -0.102 0.055

NOBS=502; F-Value: 1.78; Adj. R-square: 0.036. NOBS=20,440; F-Value: 67.57; Adj. R-square:0.073.

27

Table 3: Cost-Sharing versus Free-Rider (Net Effect)

INDUSTRIES

(2-digit SIC-Codes)

13Oil and GasExtraction

28Chemicals andAllied Products

29Petroleum andCoal Products

32Stone, Clay,and GlassProducts

35Industrial

Machinery andEquipmt.

36Electronic andother ElectricEquipment

37Transportation

Equipment

38Instruments and

RelatedProducts

13 Oil and GasExtraction

0.21(2.31)

28 Chemicals andAllied Products

9.03(7.09)

5.31**(2.94)

29 Petroleum andCoal Products

1.33(1.86)

7.98(6.37)

-2.47**(2.98)

32 Stone, Clay, andGlass Products

9.43(1576E05)

4.56(45.10)

35 IndustrialMachinery andEquipment

8.48**(2.92)

6.21(4.91)

6.82(379.20)

3.97**(2.30)

36 Electronic andother ElectricEquipment

3.04(2.56)

4.37*(2.98)

37 TransportationEquipment

3.44(21.93)

-1.22(1084E04)

10.53**(4.19)

38 Instruments andRelated Products

8.02(8577E05)

4.94**(2.44)

6.13*(3.89)

6.94(1072E05)

-0.97(5122E05)

Standard errors are given in parentheses. **- significant at 5%-level. *- significant at a 10%-level.

28

Table 4: Sources and Complementarities in RJV FormationProbit Estimates of Equation (14): Dependent Variable: Pij

Variables Estimates Standard Errors

DASSET -0.114 0.033

r&dh 0.006 0.003

MEMBERS 0.010 0.004

RJVS -0.0002 0.0006

SIC13 0.004 0.005

SIC28 -0.040 0.014

SIC29 0.027 0.012

SIC35 -0.028 0.009

SIC36 -0.015 0.012

SIC38 0.023 0.014

COMP1328 -0.078 0.023

COMP1329 -0.014 0.004

COMP1332 -0.081 0.025

COMP1335 -0.069 0.021

COMP1337 -0.023 0.010

COMP2829 -0.072 0.020

COMP2832 -0.032 0.012

COMP2935 -0.054 0.015

COMP3235 -0.053 0.017

COMP3237 0.021 0.012

COMP3238 -0.065 0.022

COMP3536 -0.011 0.008

COMP3537 -0.090 0.027

COMP3538 -0.034 0.012

COMP3638 -0.041 0.017

COMP3738 -0.055 0.019The reported estimates are converted such that they represent the increase in probability for a

given variable. For example, for DASSET the number in the above table is α α1

f X( ) , where

X is the sample mean of the exogenous. NOBS=20,942; Log-likelihood: -911.898.Concordant=97.3%, Discordant=1.3%, Tied 1.4%.

29

Figure 1

Xi,X

Xj,X45O

Xi*(Xj)

Xj*(Xi)

A

B

Effective R&D Investments: Substitutable Product Markets

A- Symmetric R&D Competition EquilibriumB- Asymmetric R&D Competition EquilibriumC- RJV Equilibrium

Figure 2

Xi,X

Xj,X45O

Xi*(Xj)

Xj*(Xi)

A

B

Effective R&D Investments: Complementary Product Markets

C

A- Symmetric R&D Competition EquilibriumB- Asymmetric R&D Competition EquilibriumC- RJV Equilibrium