The paper examines a motive for R&D cooperation with a rival by considering the behavior of a
quality follower in a model of vertically differentiated products. We show that, in some settings,
a quality follower has an incentive to contribute money to R&D activity of a quality leader with
the sole purpose of making the leader’s products even better. The reason behind this motivation
is that the leader’s product quality is serving as an upper-constraint in the decision process of the
follower regarding product quality selection. Thus, if the leader’s product quality is raised both
firms will be better off.