Over the last two decades there has been a tremendous increase in collaboration among competing firms. A significant number of these collaborations are international. This thesis explores the incentives and welfare consequences of collaboration in the context of international trade. We consider two types of cross-border collaborations. The first is collaboration by sharing a part of firms' value creating activities, such as technology development, product design and distribution. This saves on production costs but reduces product distinctiveness. Firms collaborate if and only if the reduction in product distinctiveness is lower than a threshold level. We find that the threshold increases with an increase in trade costs. That is, an increase in trade costs makes collaboration more likely. Higher trade cost lowers competition, which in turn enables the firms to save on fixed costs while forgoing some product distinctiveness. Furthermore, we demonstrate that contrary to standard intuition, higher trade cost could enhance consumers' welfare by inducing competitors to collaborate. We extend our model to endogenise location choice by the firms where collaboration requires co-location (due to the benefit of local spillovers or joint investment in key infrastructures). Unlike the original model, we find that an increase in trade costs can discourage collaboration. In both circumstances, we find that an increase in trade cost can improve consumer surplus. The second type of collaboration considered in this thesis is licensing. We extend the standard licensing literature to an environment where firms compete in the domestic as well as foreign market. We examine how trade cost affects the licensing decision as well as the optimal payment mechanism. We find that an increase in trade costs reduces the possibility of licensing. Concerning the payment mechanism, we find that (i) either royalty or (ii) a two-part tariff (involving a fixed fee as well as royalty payments) is optimal. An increase in trade costs reduces the likelihood of royalty only being the optimal payment mechanism.

Over the last two decades there has been a tremendous increase in collaboration among competing firms. A significant number of these collaborations are international. This thesis explores the incentives and welfare consequences of collaboration in the context of international trade. We consider two types of cross-border collaborations. The first is collaboration by sharing a part of firms' value creating activities, such as technology development, product design and distribution. This saves on production costs but reduces product distinctiveness. Firms collaborate if and only if the reduction in product distinctiveness is lower than a threshold level. We find that the threshold increases with an increase in trade costs. That is, an increase in trade costs makes collaboration more likely. Higher trade cost lowers competition, which in turn enables the firms to save on fixed costs while forgoing some product distinctiveness. Furthermore, we demonstrate that contrary to standard intuition, higher trade cost could enhance consumers' welfare by inducing competitors to collaborate. We extend our model to endogenise location choice by the firms where collaboration requires co-location (due to the benefit of local spillovers or joint investment in key infrastructures). Unlike the original model, we find that an increase in trade costs can discourage collaboration. In both circumstances, we find that an increase in trade cost can improve consumer surplus. The second type of collaboration considered in this thesis is licensing. We extend the standard licensing literature to an environment where firms compete in the domestic as well as foreign market. We examine how trade cost affects the licensing decision as well as the optimal payment mechanism. We find that an increase in trade costs reduces the possibility of licensing. Concerning the payment mechanism, we find that (i) either royalty or (ii) a two-part tariff (involving a fixed fee as well as royalty payments) is optimal. An increase in trade costs reduces the likelihood of royalty only being the optimal payment mechanism.