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Profit-enhancing competitive pressure in vertically related industries

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  • Matsushima, Noriaki
  • Mizuno, Tomomichi

Abstract

Under a simple Cournot model with vertical relations, when downstream firms engage in process R&D, the profits of input suppliers for which upstream competition exists may be larger than those in which each input supplier has a bilateral monopoly relation with its buyer (downstream firm). This is because upstream competition leads to higher levels of investment by the downstream firms. Furthermore, we incorporate the decisions of downstream firms to acquire the ability to procure input from potential outside suppliers, which has the effect of placing competitive pressure on existing input suppliers. We show that no downstream firm acquires such an ability to procure its input from potential outside suppliers in some cases although the acquisition could benefit the input suppliers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 26 (2012)
Issue (Month): 1 ()
Pages: 142-152

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Handle: RePEc:eee:jjieco:v:26:y:2012:i:1:p:142-152

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Web page: http://www.elsevier.com/locate/inca/622903

Related research

Keywords: Upstream firm; Competition; Bilateral oligopoly; R&D;

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References

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Cited by:
  1. Naylor, Robin & Soegaard, Christian, 2014. "The Effects of Entry in Oligopoly with Bargained Wages," The Warwick Economics Research Paper Series (TWERPS) 1044, University of Warwick, Department of Economics.

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