Cooperative vs. non-cooperative R&D under uncertain probability of success

The present paper introduces incomplete information about success probability of R&D in a model of two firms interacting in R&D and production and discusses the choice between research joint venture (RJV) and non-cooperative R&D. We have shown that whenever the high-type firm prefers RJV, the low-type firm also prefers RJV, and if the low-type firm prefers non-cooperative R&D, the other firm will do the same. On the other hand, when the high-type firm prefers non-cooperative research, the low-type firm will go for RJV or non-cooperative research depending on the constellation of parameters. However, the high-type firm preferring RJV and the low-type firm preferring non-cooperative research can never occur under incomplete information, although this can be a possibility under complete information. Finally, if the R&D cost is at the intermediate level and the probability that a firm is of high type is above a critical level, RJV will occur irrespective of the type distribution of nature. RJV may also occur when both firms are low type and the corresponding probability belongs to an interval. In all other cases non-cooperative R&D will occur.