R&D cooperation with entry

We show the effects of entry by a non-innovating firm on the innovating firms' incentive for undertaking cooperative R&D, highlighting the implications of knowledge spillover. Entry by a non-innovating firm may either increase or decrease the incentive for cooperative R&D compared with no entry, depending on the innovating and the non-innovating firms' gains from knowledge spillover. The entry deterrence motive, which has so far been ignored in the literature, plays an important role in determining R&D organization in our analysis.