Endogenous asymmetry and cooperative R&D in linear duopoly with spillovers

In a standard model of R&D followed by linear Cournot competition, firm asymmetryis sustainable as equilibrium with non cooperative R&D if and only if theproductivity of research is sufficiently large relative to the benefits of imitation. Increasingspillovers distribute R&D results among asymmetric competitors, causingprice, firm asymmetry, and joint profit to reduce. With zero spillovers, a symmetricjoint lab dominates asymmetric R&D competition in terms of social welfare and consumersurplus, but is sometimes dominated in terms of joint profit. Raising spilloversencourage symmetric collusion but makes the latter potentially harmful to consumers.(JEL : C72; L13; O32).