Information Sharing and Optimum Financing Mode

Within a setting where an established firm (incumbent) and a new venture engage in R&D and compete in the product market, we analyze R&D cooperation and optimum financing mode. We show that if an equilibrium is one where firms cooperate, then financing is provided by the incumbent. Cooperation is more likely in organizations where agency problems are less severe, e.g. family firms, and the riskier R&D. If the R&D output is patentable, cooperation is implemented ex-post via licensing and the optimum financing mode has financing provided by a pure financial institution.