R &d and market sharing agreements

We analyze the formation of R &D alliances and market sharing (MS) agreements by which firms commit not to enter in each other’s territory in oligopolistic markets. We show that R &D alliance structures are stable only in the presence of MS agreements. Thus, long lasting R &D alliances could signal the existence of some MS agreement in the industry. We characterize the set of stable symmetric pairs of coalition structures with identical R &D and MS structure. In addition, we show the stability of a class of asymmetric pairs of coalition structures where the most efficient firms form both an R &D and a MS agreement while the other firms do not form any MS agreement but form two smaller R &D alliances. Even though MS agreements are detrimental for consumers, we show that the stable pairs of coalition structures are a better outcome for consumers than no cooperation at all.