Collaborative Innovation (or Not?!) When Product Performance Is Critical

Research and development (R&D) collaborations are horizontal agreements among firms to join forces in their inventive activities. As in the context of the recent COVID-19 global pandemic, such collaborations are often promoted with an argument of increased R&D productivity. In numerous contexts, especially when marginal production costs are low, such as for medications or for software, the consumers' surplus depends critically on the best-performing product available on the market, for-all else equal-this product will tend to take a dominant position. Using a simple two-stage model of innovation and subsequent product commercialization on a market with heterogeneous consumers, we show that a noncollaborative patent race with patent protection (for the best product) provides strong innovation incentives, leading to better performing products than a regime of noncollaborative research without patent protection or of collaborative research (with profit sharing). © 2021 IEEE Computer Society. All rights reserved.