The Optimal Level of Collaboration in Regular R&D Networks

In this paper we consider the social efficiency of the regular R&D network of oligopolistic firms, where every firm has the same number of partners engaged in research activities. In the studies conducted by Goyal-Moraga (2003) and Korkmaz (2012), the social welfare is maximised at some intermediate and undetermined level of connectivity (degree) if the rate of spillovers is higher than an undetermined threshold. In order to analyse the impact of spillovers’ rate on the socially desirable level of collaborative research, we provide the analytical determination of both optimal degree of R&D collaboration and threshold level of spillovers. We find that an increasing number of firms reduces the threshold level, thus making a partial connection more desirable from a social point of view. We also show that for a small rate of spillovers,private and social incentives coincide and the efficient network is complete, while for sufficiently high level of spillovers firms tend to form too many links.