EC365 - Research Joint Ventures and Their Impacts on Economic Welfare

This paper investigates the consequences of Research Joint Ventures (RVJs) on economic welfare. It begins with a general discussion of RVJs, emphasizing their importance in the R&D framework and defining economic welfare as the improvement of economic entities. The paper explores the motivations behind RVJs, highlighting their potential impacts on innovation and the overall economic welfare, and then analyzes the potential regressive impacts of RVJs in the view of resource exploitation and cost structure. The paper examines the role of RVJs in product and process innovation, their implications for market structures (monopoly, duopoly, and monopolistic competition), and the relationship between RVJs and economic welfare. It also discusses the implications of RVJs on economic welfare, including the importance of market structure, the spillover effects of research, and the challenges related to moral hazard and the free-rider problem. The paper emphasizes the need for fair RVJ agreements and the consideration of commodity market characteristics, particularly the dominance of large firms in RVJs. Finally, the paper concludes that utility can be maximized if considerable changes are done in the production innovation.

Running head: RESEARCH JOINT VENTURE AND IMPACTS ON WELFARE
Research Joint Venture and Impacts on Welfare
Name of the Student
Name of the University
Author Note

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Executive Summary
The objective of the paper is to examine the impacts of Research Joint Ventures (RVJs) on the
economic welfare. The discussion of the paper has been developed with the help of certain
research papers. The objectives of the RVJs have been briefly is this paper. The initial section
highlights the general discussion on RVJs and its importance on the economic welfare.
Following this, the paper illustrates the possible reasons and consequences of RVJs.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Conclusion.......................................................................................................................................3
Reference list...................................................................................................................................3

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Introduction
Issue to discuss
The paper is aimed at analyzing the consequences regarding the collaborative movement
of Research and Development (R&D). Research Joint Venture (RVJ), the central idea of the
current study, is the integral part of the R&D framework. The theoretical definition of RVJ
stands for the formal arrangement of different partners (private or public entity). The
effectiveness of the cooperative action reflects the appropriate utilization of the resources
between joint partners. RVJ is a multidimensional approach in terms of the technical and
experimental methodology.
Overview of paper
Given the important aspects of RVJ, the paper attains to find out the motivating factors
the evolving demand for RVJ. Several studies have identified the economic welfare as a core
parameter in the support of joint action in the research field. Economic welfare is defined as the
improvement of the economic entities, including, human capital, natural capital and processed
capital. Economic welfare is treated as a positive external factor of the economic development.
Considering the fact, the paper attains to overview the implications of some significant RVJs on
the enhancement of economic factors.
Arguments to discuss
Meanwhile, the paper argues the regressive impacts of RVJs in the view of resource
exploitation and cost structure. The researchers should compare between the negative and
positive consequences before initiating a RVJ program. The opportunity cost of both upstream

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and downstream firm needs to be considered while performing a research and innovation
program in collaborative way.
Discussion
Literature review
According to the findings, RVJs are controlled by two or more than two parent
organizations which jointly perform as a new research firm. The purpose of the organization is to
support the development work accompanied by the innovative research work. RVJs are
commonly focused on the product innovation and process innovation (Arnold, 2019). In terms of
product innovation, downstream firms emphasize on the quality advancement of the tangible
products and services. This strengthens the market position of the innovative product. On the
other hand, process innovation is generally carried by upstream firms as these firms are
financially strong than the downstream organizations. The expenditure associated with the
process innovation is relatively high than the product innovation process. Altogether, these
innovation policies are applied to develop a competitive market structure supported by the price
discrimination strategy. Every innovation strategy is aimed at lowering the production cost.
Therefore, RVJs try to apply the advanced technology in the production process. As a result of
that, both firms and consumers can derive economic benefits from the post-research development
work (Siebert, 1996). Technology advancement can bring revolutionary changes in the
manufacturing industry. Considering the fact, the RVJ can acts as a catalyst to develop a
monopoly market. The firms can set an attractive low-price structure to enhance the consumer
demand.

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Looking into this matter, the monopoly power is considered as the most expected
negative outcome of RVJs. The continuous effort on the R&D work enhances the production
capability and innovate new products. The cumulative action of research and innovation
develops a strong market position for the producer. It seems like the innovator becomes the
market controller as it can influence the market decision to a great extent. The producer attains to
achieve the monopoly power through a favorable price structure (Barajas, Huergo & Moreno,
2012). In this way, it restricts the market entry of other competitors. However, this monopoly
practice exists for time being. In monopoly structure, firms earn significant profit, and this is one
of the attractive features of the monopoly market. Therefore, other firms also attain to enter the
market to make the attractive profit. The entry of the new firms affects the profit as substitute of
the new innovative products gets introduced in the market. People can easily change their choice
and preferences in case of purchasing goods and services (Tesoriere, 2015). This eventually turns
the monopoly market into duopoly following lower revenue of the existing firms. Hence, it can
be said that RVJ is the comprehensive outcome of the duopoly market. It has been noticed that
one of the core objectives is to intensify the profit of the firm. In this regard, the economic
welfare receives deteriorating impacts as buyers fail to influence the market decision.
Alternatively, RVJ does not yield productive outcome under monopolistic competition.
According to Cabral, monopolistic competition is formed of number of firms which produce
same type of products keeping minor differences in terms of product name and interface.
Products are closely substitutes resulting in lower opportunity for profit making firms. In the
view of the Bertrand Price Competition, monopolistic firms generally avoid investing in the
R&D process. As products are closely substitutes in nature, gradual innovation does not yield
productive outcome. According to the researchers, drastic innovation is required to yield greater

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incentive. The uncertainty related to R&D can cause potential threats to the monopolistic firms.
Henceforth, it can be summarized the monopolist firms would not try to replace existing
technology on the account of intensifying the profit (Slivko & Theilen, 2014). Therefore, the
economic welfare under the monopolistic competition is not compromised like in the monopoly
market. No single firm can have that enough power to influence the market. There is least
possibility of making immense profit keeping the price level at high. If producers charge high
price the consumers will change their purchasing options from higher cost to lower cost. As a
result of that, economic welfare and action of monopolistic firms are positively related.
Implication of RVJs on Economic Welfare
Underlying the fact, the paper attains to identify why and when economy initiate for RVJ
formation. Market structure should establish in such a way which ensure spillover effect of profit
for all the market entities. The research work needs to be exercised to make heterogeneous
products. It has been observed that supply of heterogeneous products intensify the marker
demand (Seru, 2014). The researchers must consider the dynamic effects of the research work
including both external and internal affects. The cooperative research initiative claims
proportional distribution of the profits among the allied firms. Firms will be interested to involve
in research work if significant amount of profit is guaranteed. Revenue from input needs to be
analyzed to determine the cost structure. The lower the production cost the higher the revenue.
On this account, upfront cost must be taken into consideration during RVJ mechanism. In
general, any research work is associated with considerable amount of uncertainty (Gambardella,
Raasch & von Hippel, 2017). The degree of uncertainty depends on the objective of the research.
If the research process involves greater amount of economic resources, there is a high chance of
losses if research aim does not get enhanced. Referring to the fact, the profit is the key

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significant factor for the participants of RVJ. From the investor’s perspective, the return of the
investment is an important deciding factor whether the research work should be continued or not
(Nicholls & Daggers, 2016). Increasing return to the investment is the driving force for
continuing the investment process.
Every single participant firm is focused on the return to their monetary contributions. In
this context, the proposition of Katz is important to discuss the spillover effect of research work.
In terms of the economic theory, moral hazard is the most common phenomenon to discuss the
role of the RVJ. It has been noticed that technical advancement is the fundamental criteria for
R&D process (Duso, Röller & Seldeslachts, 2014). In nowadays, most of the te4chnical
development programs are not subject to the sustainable economic development. Therefore, it
ensures the enhancement of the revenue neglecting the environmental impacts. The continuous
negligence to the environment causes harmful impacts on the nature. Eventually it hampers the
ecological balance. For example, innovation of four wheelers has brought the historical changes
in the human lives. It reduces the transportation time as well as improves the transportation
system (Miller & Weinberg, 2017). On the contrary, the innovation is responsible for greater
amount of carbon emission to environment. In the meantime, it encourages the use of non-
renewable energy, like, petrol and diesel. The exploitation of non-renewable energy is the great
concern to the environmentalists (Dahlman, Lasagabaster & Larsen, 2016). The negative impact
on the ecological system is considered as a result of moral hazard. To be specific, free rider
problem is commonly faced by the producers of the public goods. As the public goods are not
owned by the private party, public goods can be accessed by anyone. In this case, over utilization
of the public goods is yield fetal outcome for the economy. RVJ agreement needs to be fair
which minimize the moral hazards and intensifies the incentives for every participant firms.

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Further, characteristics of the commodity market must be analyzed before initializing the
research work. Any innovation program incurs huge cost which requires sizable fund to
investment (Jamasb et al., 2014). Hence, large firms are observed to take initiative for R&D
process to support the RVJ. Meanwhile, large firms produce expensive and luxury goods which
are significantly different from normal and necessary goods. According to the analysts,
producers of necessary goods generally not interested in the RVJ, whereas, manufacturers of the
luxury goods are always focused at the improvement of the products features to enhance the
profit level (Lee & Kang, 2015). Considering the fact, the paper has observed that small firms
are always dominated by the big firms. If RVJ is formed by small and large firm, the major
portion of the profit gets enhanced by the large firm. A number of complains have been reported
against the large firms under RVJ. The complains are mainly concentrated on the unfair practice
of knowledge sharing and cooperative movement (Audretsch, Lehmann & Wright, 2014). Shared
knowledge is not as exclusive as expected for R&D project. In this regard, the RVJ between
Toyota and BMW in 2014 can be mentioned. These two big car manufacturers are agreed into
RVJ owing to hold the comparative advantageous position in the car market. BMW plans to
exchange its powerful engine technology with the hybrid technology of Toyota. Development of
lithium ion batteries is the vital aim of this RVJ. This research collaboration is clearly not
restricted to the monetary benefits (Boockmann et al., 2015). It is aimed at lowering the
environmental pollution. The appropriate function of the cooperative movement not only assures
the knowledge sharing also improves the employment level. Data states that more than 50% of
RVJ works only for the innovative process instead of improving the product quality.
In the view of growing market demand, RVJ is exclusively important for the product
development and the supply chain integration program. Depending on the outcome of the

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product innovation, the analysis can be polarized (Manasakis, Petrakis & Zikos, 2014). The
newer firms are keen to take risk which can occur after being part of the RVJ. The market
analysts argue that newer firms have nothing to loss, which in turn, encourages the newer
producers to form RVJ. Consecutively, this may result in the considerable improvement of the
welfare of newer firms get success from this RVJ initiation.
Conclusion
Following the discussion, the paper concludes that utility can be maximised if
considerable changes are done in the production innovation. If not, minor to medium changes are
required in the product variation. RVJ is generally formed to make an entry barrier for the
potential threats. Consumer utility is the important aspect of economic welfare. If product
innovation hikes the market price above the average level, market demand will be declined.
Meanwhile, the product duplication can be eliminated through continuous effort on R&D. The
constant dissemination of information decreases the cost through increasing return of scale. This
lower cost allows the firms to supply more quantity comparatively at low cost keeping the high
profit margin. Eventually, it helps every single participant firms to gain incentive through RVJ
process. Nonetheless, a fine line must be maintained between RVJ and anticompetitive
framework. If participants of RVJ do not incorporate with each other, the success of the RVJ will
not be achieved. Overall, considerable investment into joint research program can make society
better-off through production revolution strategy.

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Reference list
Arnold, S. S. (2019). EC365-6-SP Theory of Monopoly and Regulation.
Audretsch, D. B., Lehmann, E. E., & Wright, M. (2014). Technology transfer in a global
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Barajas, A., Huergo, E., & Moreno, L. (2012). Measuring the economic impact of research joint
ventures supported by the EU Framework Programme. The Journal of Technology
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Boockmann, B., Walter, T., Huber, M., Thomsen, S. L., & Göbel, C. (2015). Should welfare
administration be centralized or decentralized? Evidence from a policy
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Dahlman, C., Lasagabaster, E., & Larsen, K. (2016). Inclusive innovation: Harnessing creativity
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