Endogenous Asymmetry and Cooperative R&D in Linear Duopoly with Spillovers

In a standard model of R&D followed by linear Cournot competition, firm asymmetry is sustainable as equilibrium with noncooperative R&D if and only if the productivity of research is sufficiently large relative to the benefits of imitation. Increasing spillovers distribute R&D results among asymmetric competitors, causing price, firm asymmetry, and joint profit to reduce. With zero spillovers, a symmetric joint lab dominates asymmetric R&D competition in terms of social welfare and consumer surplus, but is sometimes dominated in terms of joint profit. Rising spillovers encourage symmetric collusion but make the latter potentially harmful to consumers.