Cross-ownership and cooperative R&D under research subsidy policy

We consider cross-ownership in a duopoly competition with research and development (R&D) and compare the effects of a research subsidy policy on non-cooperative and cooperative R&D. We find that the impacts of cross-ownership may produce opposite results, depending on the spillover rate and the presence of a research subsidy. In the absence of research subsidies, cross-ownership positively affects society under both cooperative R&D and non-cooperative R&D with high spillovers. However, cross-ownership may cause negative effects on society with a research subsidy. We also show that cooperative R&D can improve welfare regardless of the subsidy policy only when the spillovers are small, while a research subsidy can consistently improve welfare regardless of R&D cooperativeness. Our findings suggest that anti-trust agencies should pay more attention to cooperative R&D under a research subsidy policy when formulating pro-competitive policies concerning cross-shareholding.