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research Over the years a substantial knowledge base has developed focusing on
the role of science and research activities not only the scientific but also in
the commercial landscape. While most research activities have traditionally
been driven by public institutes and universities , firms in the private   perceived, public institutions can play a
key role in providing essential basic research (Pavitt, 1998). Basic research can be defined as research,
purely driven by research purposes, to uncover fundamentally new things such as
laws of nature (John, 2013). This type of research forms the
basis for a wide range of more applied R&D activities that can lead to
advancements in industry, technology and other aspects of society (Pavitt, 1998).

Even though
basic research activities are mostly conducted by public research institutes,
there are also several large firms who are active in this field and also
publish scientific papers and discover important breakthroughs (Hicks, 1995). The importance of basic research
as the foundation of future applied research cannot be understated and it plays
a vital role at some point in the creation of numerous innovations or
technological breakthroughs (Mansfield, 1991). 
Through their role as the primary provider of basic research , public
research institutes are therefore also crucial for commercial R&D, as has
been empirically proven by measuring the impact of university research on the
levels of industrial innovation in the area surrounding a university (Jaffe, 1989) .

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activities are performed by firms looking to improve their products or
processes in an attempt to maintain or improve their position in the market.
Several decades ago the first studies started analyzing the impact of R&D
activities on firm performance (Griliches,
1958; Mansfield, 1965). More recent studies have made use
of a production function approach where several dimensions of firm performance
are shown to be related to R&D as well as other variables relating to
innovation. These studies have found that performing R&D contributes
significantly to general sales performance , rise in productivity and firm
& productivity growth (Klomp & Van Leeuwen, 2001; Mairesse & Mohnen,
2001; Nadiri & Prucha, 1993; Tubbs, 2007). These effects have been proven not
to be country specific and are similar for firms in different countries
operating on the same global markets (Janz, Lööf, & Peters, 2004)


Why do firms cooperate on innovation?


Over time co-operative
innovation agreements have been becoming increasingly popular due to the growth
in risks, complexity and costs related to innovation (Hagedoorn,
2002; Nooteboom, 1999) . As this trend is becoming
more  widespread, it  is causing a shift in our traditional way of
thinking about organizations and innovation (Fusfeld &
Haklisch, 1985) . Certain firm characteristics
thought to be important to successfully innovate don’t need to be possessed by
one firm but can be obtained by combining company skills and resources in
co-operative agreements . Firms can have a range of different incentives to
collaborate on innovation. Tether highlights in his study that firms seek to
collaborate on innovation as a way to reduce the risks involved or get access
to additional external resources (Tether, 2002). The research of Becker and Dietz
confirms these drivers to collaborate but additionally stresses the importance
of gaining economies of scale and scope , the cost cutting opportunities and
the opportunity for organizational learning and joint expertise (Becker & Dietz, 2004). Aside from the benefits, there are
also some disadvantages to cooperating on innovation due to the transaction
costs occurring in the combination and coordination of activities, processes
and recourses (Pisano, 1990).  For R cooperation to be successful the
combination of the benefits must outweigh the transaction costs occurred.

There’s a
variety in the type of partners that partake in cooperative innovation
activities. In general there are four types of partners for firms to cooperate
with concerning innovation: competitors, suppliers, customers, and universities
and research institutes. Industrial organization literature has mostly focused
on horizontal cooperation (cooperation between firms/competitors) , stressing
the importance of spillovers. There are two kinds of spillovers , incoming and
outgoing spillovers. Incoming spillovers can be seen as the external
information flows that the firm acquires to benefit its own innovation process,
while outgoing spillovers are the flows of information and innovation benefits
that exit the company and can reach external parties. (Belderbos, Carree, Diederen, Lokshin,
& Veugelers, 2004). While incoming spillovers are
viewed by firms solely as a positive effect and therefore maximized , outgoing
spillovers could also be detrimental if sensitive or important information that
could be disadvantageous to the firm if it is leaked to competitors or other
parties. The ability to maximize incoming spillovers and control outgoing
spillovers is seen as a very important capability. (Cohen &
Levinthal, 1989) Have shown that by continuously
performing in-house R&D activities firms can enhance their absorptive
capacity. This absorptive capacity enhances their ability to process external
incoming information flows and to optimize their ability to identify and
integrate relevant incoming spillovers into their own innovation activities. Entering
into horizontal cooperative agreements is another method to control incoming
and outgoing spillovers. By cooperating with competitors or other firms , in a
research joint venture , participating firms increase the flow of incoming
spillovers through better information sharing between the participants (Kamien, Muller, & Zang, 1992). Additionally , they are able to
get a positive effect out of their own outgoing spillovers, since these
spillovers now flow to RJV partners and can lead to the improvement of the
joint research activities (Cassiman, 2000). (De Bondt &
Veugelers, 1991) have shown that when spillovers exceed
a certain critical level they will lead to an increase in the relative
profitability of the research and development partnership. Spillovers should
therefore be seen as an essential dynamic driving the creation and performance
of R&D collaborations.

While the
industrial organization literature focuses on spillovers in horizontal R&D
collaborations , the management literature also takes a closer look at the other
types of firms as R&D partners. When collaborating with non-competitors  , the risk surrounding outgoing spillovers Is
significantly lower and less relevant in the decision making process whether to
collaborate or not (Belderbos et al., 2004). 

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