R&D Coopetition: Information Sharing and Competition for Innovation∗

Innovation is typically a trial-and-error process. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their negative findings. Hence, time and resources are wasted on dead-end projects. We offer a model to study this prevalent problem and characterize the equilibrium with wasteful dead-end replication. We identify an inefficient information externality leading to early abandonment of valuable projects. We also study a centralized mechanism where firms are incentivized to disclose their activities and share their private information in a timely manner. JEL Classification: O31, L20.