Profit-enhancing competitive pressure in vertically related industries
AbstractUnder 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 InfoArticle provided by Elsevier in its journal Journal of the Japanese and International Economies.
Volume (Year): 26 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/622903
Upstream firm; Competition; Bilateral oligopoly; R&D;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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