Both cooperative and non-cooperative R&D performed in parallel under technology spillover

Enterprises do not typically choose between R&D cooperation and R&D competition. They may be engaged in a large number of R&D projects. Some cooperatively with others, some competitively on their own. So there is need to take both cooperation and competition into account simultaneously. We set up a model of nontournament process R&D where enterprises engage simultaneously in noncooperative and cooperative R&D. In the first stage firms determine the optimal investments in both types of R&D. In the second they compete in output. It is found that the investment in each when both types of R&D coexist is higher than if firms had to choose between cooperation and competition; there is no substitution between noncooperative R&D subsidization and R&D cooperation; the subsidy is needed by both kinds of R&D.