Designing input prices to motivate process innovation
AbstractWe examine the optimal design of regulated input prices, accounting explicitly for their impact on incentives for process innovation. Optimal input prices are shown to vary both with the prevailing vertical industry structure and with the nature of downstream competition. The optimal input pricing rule tends to provide stronger incentives for innovation under vertical integration than under vertical separation in the presence of downstream Cournot competition. The stronger incentives tend to be implemented under vertical separation in the presence of downstream Bertrand competition.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 27 (2009)
Issue (Month): 3 (May)
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Web page: http://www.elsevier.com/locate/inca/505551
Innovation Regulation Input prices Vertical integration;
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