Strategic green technology innovation in a two-stage alliance: Vertical collaboration or co-development?

Given the increased awareness of the need for environmental protection, developing and selling new energy vehicles has gradually become the primary trend in the automobile industry. Collaborating with battery manufacturers to develop new energy vehicles at a lower cost and with better performance is key for automobile manufacturers to maintain their dominant position. We examine a research and development (R&D) collaboration alliance, consisting of an R&D phase and a sales phase, between an automobile manufacturer (the marketer) and a battery manufacturer (the innovator) to develop and bring an innovative green technology to market. This paper investigates four types of R&D collaboration contracts with different payments: vertical R&D collaboration contracts with either a revenue-sharing payment (Case VR) or a fixed payment (Case VF) and co-development contracts in which either the marketer operates the sales phase (Case CM) or the innovator operates the sales phase (Case CI). Our analysis reveals that no contract is always the best choice from the marketer’s perspective. Specifically, the contract preferred by the marketer depends on the trade-off between the R&D efficiency and the sales efficiency of the marketer and the innovator, respectively. Interestingly, becoming involved in the R&D phase is not always in the marketer’s best interest, i.e., the marketer does not always prefer the co-development contract. Counterintuitively, we find that the marketer does not always choose to sell the green product, even when its marketing efficiency is high. Furthermore, under certain circumstances, it is more advantageous for the marketer to propose that the innovator sell the green product rather than doing so itself.